Thursday, October 24, 2013
Banks Slowly Moving Out Of JGBs To Risky Assets: BOJ
TOKYO (Nikkei)--The Bank of Japan believes its effort to loosen credit by buying huge amounts of government bonds is encouraging banks to take more risks.
Released Wednesday, the BOJ's latest Financial System Report analyzes the effects of the monetary easing campaign begun in April under new Governor Haruhiko Kuroda.
Banks are gradually shifting money out of Japanese government bonds, according to the BOJ department that prepares the semiannual report. Banks' JGB holdings fell for five straight months starting in April, dropping by 23.4 trillion yen from March 31 to 138.1 trillion yen at the end of August.
Meanwhile, the BOJ's holdings of long-term Japanese government debt jumped 40% from March 31, going from around 91 trillion yen to some 129 trillion yen as of Oct. 20. The bank expects to reach 140 trillion yen at year's end and 190 trillion yen at the close of 2014.
The BOJ's bond buying is supposed to drive money out of banks and into the real economy. On average, outstanding bank loans were up 2.3% on the year in September. Lending to power companies had already been rising, but loans to the medical and welfare sector are also growing, according to the report.
Banks' smaller JGB holdings leave them less exposed to interest rate volatility than before. A 1 percentage point rise in yields across all maturities would hit commercial and "shinkin" banks, a type of credit association, with an estimated 7.9 trillion yen in losses based on current holdings, compared with 8.4 trillion yen at the time of the April report. Commercial banks' potential losses have shrunk from 6.6 trillion yen to 6 trillion yen.
But the report finds "no major changes" in asset holdings at institutional investors, such as life insurers and pension funds, which some had expected to shunt money into foreign bonds. Even at banks, growth in risky assets has been "sluggish" recently, the report states. Market trends of late even show signs that banks may be backsliding into JGBs.
(The Nikkei, Oct. 24 morning edition)