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