One of the largest central banks completes QE. End of an era for Japan: Large printed matter was one of the three official legs of Abenomics.
By Wolf Richter to WOLF STREET.
In terms of the absolute mountain of assets the Bank of Japan bought over the years, it is one of the top three QE monsters along with the Fed and ECB. In terms of GDP, BoJ’s total assets are # 2, behind the small Swiss National Bank, which operates the unique racket of using the overhyped strength of the Swiss franc to print large volumes of it and buy securities denominated in foreign currencies, including large volumes of US equities; but it does not buy securities in Swiss francs.
The total assets on the BoJ’s balance sheet generally fall every three months as large amounts of long-term bonds mature and are redeemed, which is when the BoJ gets its money back and the bonds come off the balance sheet. For this reason, we look at the three-month moving average of increases in total assets.
From the balance sheet until August 31, the three-month moving average of total assets averaged just ¥ 690 billion ($ 6.3 billion) per month, the smallest increase since 2012, before Abenomics became the country’s economic religion. This marks the end of Abenomics QE:
BoJ’s blistering QE binge started with “Abenomics”, the economic religion imposed on the country in 2013 under Shinzo Abe, Prime Minister from September 2012 to September 2020. One of the three official legs of Abenomics was massive money pressure. It culminated in the huge eruption in the spring of 2020. But all that is now history.
Although the Fed has set the stage to start declining its asset purchases later in the year, and while the ECB is beating the Fed for inspiration, the Bank of Japan, without making a lot of hoopla, has already cut its asset purchases down to the bone.
The total assets per August 31, a whopping 726.7 trillion yen ($ 6.6 trillion), rose markedly from May. And in September, due to the large redemptions of long-term bonds, total assets will fall:
Other central banks that had participated in these QE binges have already reduced their purchases of assets. The Reserve Bank of New Zealand made such a cold turkey in May. The Reserve Bank of Australia announced today that it would reduce its weekly bond purchases from $ 5 billion a week to $ 4 billion a week.
The Bank of Canada, which began downsizing its asset purchases in October, has reduced Canada’s government bond purchases from $ 5 billion. C $ per week to 2 billion. C $ per week, completed its acquisition of MBS completely and liquidated its holdings of short-term Canadian treasuries and repos, with the effect that total assets on the balance sheet have now fallen by 15% from the peak in March.
But these are small central banks. In terms of developed economies, the Fed, the ECB and the BoJ are the heavyweights. And the BoJ has reduced its QE to almost nothing as Abenomics fades into history.
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