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BOJ's gov't bond holdings in FY 2021 fall for 1st time under Kuroda

This photo shows the Bank of Japan headquarters building in Tokyo. (Mainichi)

TOKYO (Kyodo) -- The Bank of Japan's holdings of government bonds dropped in fiscal 2021 for the first time since Governor Haruhiko Kuroda took the helm as more short-term issues intended to finance the government's pandemic responses reached maturity, though total assets hit a new record, its earnings report showed Friday.

    The BOJ owned 526.17 trillion yen ($4.1 trillion) in Japanese government bonds in the year to March, down 1.1 percent from a year ago, roughly about half of the state's bonds outstanding. The Japanese central bank has been gobbling up government debt to keep borrowing costs at extremely low levels to support the economy whose size stood at about 540 trillion yen as of March.

    The central bank's total assets still hit a record 736.25 trillion yen as it boosted loans to support companies hit by the pandemic-induced economic slowdown.

    The BOJ has taken steps to ease funding conditions for firms reeling from the COVID-19 pandemic. Loans to commercial banks increased 20.4 percent to 151.53 trillion yen, a major factor behind the rise in total assets in fiscal 2021.

    The BOJ is poised to remain an outlier among major central banks in raising interest rates and reducing their swollen balance sheets, as the goal of achieving its 2 percent inflation target in a sustainable and stable manner looks elusive.

    But its total assets, already larger than the world's third-largest economy, are already posing a formidable challenge to the BOJ.

    The BOJ's bond-buying came under scrutiny after former Prime Minister Shinzo Abe called it "a subsidiary of the government," due to its massive holdings of government bonds since Kuroda became governor in 2013. Abe drew criticism for saying that the government can roll over its debt when the deadline for repayment comes.

    The fall in total government bond holdings, the first in 13 years, came as short-term bonds were redeemed, but longer ones increased 3.1 percent from a year earlier to 511.23 trillion yen, the BOJ data showed.

    Under its yield curve control program, the BOJ is seeking to guide 10-year Japanese government bonds around zero percent, and it conducts unlimited fixed-rate buying every business day in principle to keep the yield on the benchmark bond from rising above 0.25 percent.

    Opposition lawmakers have raised questions about the BOJ's expanding balance sheet and whether it can reduce it without rattling financial markets when the time comes.

    "It's possible for the BOJ to carry out an exit strategy appropriately by using various methods and ensuring stability in financial markets," Kuroda told a parliamentary session on Thursday, adding that monetary easing will be still needed for the time being.

    "I admit (such an exit) won't be easy but I believe it's possible," the BOJ chief said.

    Japan's core consumer price inflation topped 2 percent in April, due largely to higher energy and commodity prices, with the weaker yen boosting their import costs. Based on BOJ projections, the core consumer price index excluding volatile fresh food items will slow to a 1.1 percent increase in fiscal 2023.

    As the BOJ has diverged from its major peers such as the Federal Reserve that has entered a rate hike cycle, the yen has fallen sharply, especially against the U.S. dollar.

    The BOJ's net income increased to 1.32 trillion yen from 1.22 trillion yen a year earlier, lifted by the weaker yen that boosted the value of its foreign exchange-denominated assets and a profit from its holdings of exchange-traded funds.

    The BOJ has been making tweaks to its tool kit to address the side-effects of protracted monetary easing. It removed an annual purchase target for exchange-traded funds, or investment funds traded on stock exchanges, in 2021.

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