Outside the Bank of Japan (BOJ) headquarters in Tokyo on Sept. 14.

Photographer: Kiyoshi Ota/Bloomberg

The Bank of Japan’s escalating presence in almost every corner of the nation’s financial markets threatens to further distort activity and complicate any future pulling back from stimulus.

The central bank’s growing pile of assets has now reached the equivalent of 137% of gross domestic product, according to a Bloomberg calculation based on official data. In dollar terms, the tally of securities, loans and other assets is just 8% smaller than the Federal Reserve’s even though the U.S. economy is four times bigger than Japan’s.

While economists laud the relative success of the BOJ’s measures to support businesses and the economy through the Covid-19 crisis, many of them also warn that accelerated growth in the bank’s asset mountain will be hard to scale back in the future without unnerving investors and shocking loan-dependent companies and policy makers.

With its array of corporate debt and commercial paper quickly building, the BOJ’s “whale in the pond” presence is also spreading beyond government bonds and stock funds to distort other markets and further crowd out private investors.

“It’s like the BOJ has created an intensive care unit and wheeled everybody inside. It’s so comfortable on the drip feed that no one wants to leave,” said Takahiro Sekido, chief Japan strategist at MUFG Bank Ltd.

BOJ's asset haul is larger than Fed's by the size of an economy

The BOJ aggressively ramped up its lending and asset buying in March as the looming scale of the pandemic spread jitters among investors and businesses.

Given the already bloated size of the BOJ’s assets, the pace of increase appeared smaller in scale than its global peers, especially compared with the Federal Reserve. That partly reflects the Fed’s efforts to trim back earlier stimulus, something the BOJ was unable to do and

By Leika Kihara

TOKYO, Oct 8 (Reuters)Bank of Japan Governor Haruhiko Kuroda said on Thursday the economy was starting to pick up and was likely to continue recovering thanks in part to the boost from fiscal and monetary stimulus measures.

While consumer prices will fall for the time being due to the impact of slumping oil prices, they are likely to rebound thereafter as the pandemic’s fallout on the economy eases, he said.

“Once the impact of the coronavirus pandemic subsides globally, Japan’s economy is likely to continue improving further as overseas economies resume steady growth,” Kuroda said in a speech to a quarterly meeting of the BOJ’s branch managers.

The upbeat view reinforces market expectations the BOJ will hold off ramping up stimulus for now, and focus on pumping money into the economy with existing lending programmes.

Kuroda said while Japan’s banking system remains stable as a whole, corporate funding conditions remain tight.

“We’ll monitor the impact of COVID-19 and won’t hesitate taking additional easing measures as needed,” he said.

Japan suffered its biggest economic slump on record in the second quarter as the pandemic crippled demand. Analysts expect any rebound to remain modest as fears of a second huge wave of infections weigh on consumption.

The BOJ expanded stimulus in March and April by ramping up asset buying and creating a new lending facility to ease corporate funding strains. It has kept policy steady since then.

(Reporting by Leika Kihara Editing by Chang-Ran Kim and Ana Nicolaci da Costa)

(([email protected]; +813-6441-1828; Reuters Messaging: [email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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(Bloomberg) — Stimulus steps by the Bank of Japan this year are prompting issuance of longer debt to fall, to the detriment of fund managers chasing the extra yield on such securities.

Sales of company notes due in more than five years have dropped 38% in the fiscal year started April 1. Offerings maturing in shorter periods have jumped 35% to a record, according to Bloomberg-compiled data going back to 2009. The shift comes after the BOJ decided to lengthen the maturity of corporate bonds it purchases to five years from three years.



chart: Deal Split


© Bloomberg
Deal Split

The central bank’s corporate debt buying, which it began in 2009 and expanded this year, has helped firms rushing to secure cash to ride out Covid-19. Company notes tend to be riskier than government bonds, so the BOJ’s focus on shorter maturities for the corporate securities helps it avoid locking into those for too long. But the shift in issuance it’s sparked is a headache for active fund managers who would prefer to have a fuller menu of longer notes with juicer yields.

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“The BOJ’s corporate bond buying operation has helped issuers and the Japanese economy, but it’s challenging active managers’ abilities to continue with their strategies,” said Yusuke Ueda, chief credit analyst at Mitsubishi UFJ Morgan Stanley Securities Co.

Read more: Decade of BOJ Corporate-Debt Buying Shows High Bar for Exit

Companies have also been reluctant to sell longer-dated bonds because they can often get cheaper rates by borrowing from banks, which are flush with deposits and eager to lend as a result of BOJ programs to boost loans.

Bonds sold in September by Daiwa House Industry Co., a home builder, highlight the gap in yields between different maturities. Its 10-year debt carried a coupon of 0.3%, while three-year notes