Table of Contents
This service uses statistical data published by the Bank of Japan, but the content of this service is not guaranteed by the Bank of Japan.
This service uses statistical data published by the Bank of Japan, but the content of this service is not guaranteed by the Bank of Japan.
The BOJ Statements of Account / BOJ Balance Sheet for February 2026 did not publish detailed balance sheet data. Accordingly, this note uses the most recent finalized snapshot—January 2026—as the baseline to evaluate the current status of the QQE (Quantitative and Qualitative Easing) exit strategy and to analyze prospective normalization pathways. According to the BOJ Statements of Account, as of end-January 2026 total assets stood at ¥682.9 trillion and JGS holdings reached ¥545.6 trillion, representing a month-on-month increase in JGS holdings of ¥1.1876 trillion. This rise in JGS holdings is noteworthy as a temporary reversal against the passive QT (quantitative tightening) trend that has been in place since 2024.
The BOJ Statements of Account show that JGS holdings increased by ¥1.1876 trillion in January 2026 relative to the prior month. This increase represents a clear reversal of the downward trend in JGS stock observed during the QT phase since 2024. A month-on-month increase in JGS holdings may indicate a change in the reinvestment policy for maturing JGS or the execution of short-term market adjustment operations.
The basic mechanism of passive QT is to allow the central bank’s balance sheet to decline naturally by stopping or reducing reinvestment of maturing securities. The BOJ has employed this mechanism since 2024; the January 2026 increase in JGS holdings implies a temporary halt or reversal of that mechanism. However, because February 2026 data are missing, it is not yet possible to determine whether the January increase is a one-off adjustment or a structural policy shift.
Total assets of ¥682.9 trillion at end-January 2026 represent a year-on-year decrease of -8.26%. This year-on-year contraction is an important indicator corroborating that the BOJ has been progressing with its QQE exit strategy. An annualized reduction rate of roughly 8% denotes a relatively gradual pace of normalization compared with the FRB and ECB.
While the year-on-year decline in total assets continues, the month-on-month increase in JGS holdings highlights that the normalization path is not necessarily linear. Multiple factors—timing of maturities, market liquidity conditions, and short-term money market supply/demand—affect monthly flows, so policy stance should not be inferred solely from a single month’s data.
The pace of JGS maturities is determined by the maturity profile of the BOJ’s JGS portfolio. As long-term JGS purchased during the QQE period mature sequentially, the BOJ can modulate normalization speed by adjusting reinvestment scale and policy. The January 2026 increase in JGS holdings suggests that reinvestment exceeded maturing amounts that month, but the BOJ’s Statements of Account do not publish the specific amounts of maturities and reinvestment to confirm this.
According to the BOJ Statements of Account, the JGS share of total assets reached 79.9% as of January 2026. This share underscores JGS’s overwhelmingly dominant position on the BOJ balance sheet. Although below the QQE-period peak, the JGS share remains historically high.
From a stock-effect perspective, a high JGS share is significant. Using the BIS Quarterly Review analytical framework, large-scale central bank JGS holdings can structurally suppress long-term yields and the term premium. The BOJ’s ownership of roughly 80% of total assets implies a dominant presence in Japanese long-term yield formation and suggests potential constraints on market-based price discovery.
As of January 2026, the policy assets ratio (the share of total assets accounted for by ETF + J-REIT + corporate bonds) was 5.9%. Within that, ETFs comprised 5.4% (¥37.2 trillion) and corporate bonds comprised 0.4%. The specific J-REIT balance is not included in the monthly data but is included in the calculation of the policy assets ratio.
ETF holdings of ¥37.2 trillion indicate the BOJ’s very large presence in the equity market. Following large-scale ETF purchases during the QQE period, the BOJ has become one of the largest investors in Japanese equities. Disposal or reduction of these policy assets is a major challenge in the QQE exit strategy; at present, no concrete disposal plan has been announced.
Loans outstanding were ¥83.5 trillion in January 2026, representing 12.2% of total assets. Loans reflect the BOJ’s various operations to supply funds to financial institutions (fund-supplying operations, growth-support funds, etc.). Although the 12.2% loans share is small relative to the 79.9% JGS share, loans remain an important channel for liquidity provision to financial institutions.
Loan dynamics reflect financial institutions’ funding demand and the BOJ’s liquidity supply stance. Under QT, a decline in loans outstanding is expected, but the BOJ may continue supplying liquidity via loans as needed to preserve market stability.
The BOJ Statements of Account report current account balances (当座預金) of ¥468.1 trillion as of January 2026, equal to 68.6% of total assets. The current account balances / total assets ratio is an important indicator of the liability-side liquidity structure of the BOJ balance sheet.
A current account balances ratio of 68.6% signals that the large stock of reserves supplied during the QQE period remains in the financial system. Financial institutions hold substantial excess reserves at the BOJ, influencing short-term rate formation. If current account balances decline under QT, upward pressure on short-term rates could emerge; however, the level of current account balances remains extremely high at present.
The BOJ Statements of Account do not include a specific balance for banknotes in circulation in the January 2026 monthly release, but banknotes in circulation are an important indicator of cash demand. In Japan, the share of cash transactions remains relatively high, and banknotes in circulation have shown a trend of gradual increase.
An increase in banknotes in circulation represents a form of liability on the BOJ balance sheet distinct from current account balances. Banknotes are held by nonbank economic agents and therefore play a different role in the transmission of monetary policy than reserves held by financial institutions.
The monetary base (banknotes in circulation + current account balances) measures the quantity of central bank–issued currency. With current account balances of ¥468.1 trillion in January 2026, the monetary base—after the large expansion during the QQE period—has been gradually contracting through the QT phase.
Changes in the monetary base are meaningful for bank lending and real-economy transmission. However, given the large stock of excess reserves accumulated during the QQE period, changes in the monetary base do not immediately translate into changes in lending or the real economy.
As of January 2026, total balance sheet sizes were: BOJ ¥682.9 trillion, FRB $6.59 trillion, and ECB €6.29 trillion. Direct comparisons are complicated by currency differences, so comparisons on a % of GDP or month-on-month change basis are more informative.
The BOJ’s year-on-year -8.26% contraction implies an annualized normalization rate of about 8%. As of February 2026, the FRB’s balance sheet was $6.61 trillion (month-on-month +0.3% slight increase) and the ECB’s was €6.23 trillion (month-on-month -1.0% decline), indicating clear differences in normalization pace among the three central banks.
The FRB began QT in June 2022 and ramped balance sheet reduction up to a maximum pace of $95 billion per month, though it slowed the pace from 2024 onward. The ECB started passive QT in March 2023 by phasing down reinvestments under the Asset Purchase Programme (APP). The BOJ was the last among the three to begin QT, and the year-on-year -8.26% contraction signals a relatively active normalization stance compared with its late start.
There are important differences in timing and tools across the three central banks. The FRB and ECB undertook large QE during the 2020–2021 pandemic response and transitioned to QT in 2022–2023 to combat high inflation. By contrast, the BOJ pursued prolonged QQE from 2013 and only entered a QT phase in 2024.
This timing gap reflects differences in economic conditions and inflation dynamics across regions. The FRB and ECB combined rate hikes with QT to tackle high inflation, whereas the BOJ—having been in a long process of escaping deflation—has adopted a more cautious normalization pace.
All three central banks have relied primarily on passive QT (stopping or reducing reinvestment of maturing assets) and have not generally pursued active asset sales. Passive QT minimizes market impact and enables gradual balance sheet reduction, but it requires a longer time horizon to complete normalization.
Because the BOJ’s JGS portfolio has a long average remaining maturity, passive QT may take over a decade to materially reduce the stock of holdings. Policy assets such as ETFs and J-REITs have no maturity, so passive QT does not apply; the BOJ will eventually need to consider active sales or other disposal methods for these assets.
According to the Statistics Bureau, as of January 2026 the headline CPI was +1.5% year-on-year, core CPI (excluding fresh food) was +2.0%, and core-core CPI (excluding fresh food and energy) was +2.6%. These figures reflect a deceleration in inflation that has been underway since the second half of 2025.
From February–June 2025, core CPI recorded gains above 3.0%, but then slowed gradually to 2.0% in January 2026. This deceleration likely reflects stabilization in energy prices and the fading of transitory upward pressures.
The BOJ targets 2% inflation and prioritizes sustained price stability. Core CPI at +2.0% and core-core CPI at +2.6% in January 2026 are at or slightly above the inflation target, suggesting that conditions permit continued balance sheet normalization.
However, if the deceleration in inflation continues, the BOJ may need to adjust the normalization pace. The January 2026 month-on-month increase in JGS holdings could signal a flexible approach to normalization that takes price developments into account.
According to the Cabinet Office, the coincident index CI stood at 114.9 in September 2025. The coincident index peaked at 117.0 in February 2025 and has since eased, suggesting that expansion momentum is slowing.
The leading index was 108.0 in September 2025. Although this is an improvement from the 104–105 range in late 2024, it remains below the 110+ levels seen in 2023, pointing to a cautious outlook for future economic activity.
According to METI, the seasonally adjusted industrial production index was 102.2 in February 2025 (month-on-month +2.3%). Production has hovered around the 100 level from late 2024 into early 2025, indicating that manufacturing activity is broadly flat.
Monthly volatility is high, but there is no clear trend of marked expansion; manufacturing lacks strong momentum. This likely reflects global uncertainty and weak domestic demand growth.
BOJ balance sheet reduction operates via a decline in reserves, which influences banks’ lending behavior and ultimately the real economy. However, with current account balances at ¥468.1 trillion (68.6% of total assets), banks still hold substantial excess reserves.
Under these conditions, balance sheet contraction is unlikely to immediately constrain lending. Banks currently retain ample liquidity and lending capacity. That said, if QT proceeds to the point where reserves fall below certain thresholds, upward pressure on short-term rates and effects on lending behavior could emerge.
The BOJ’s Tankan showed that in Q4 2025 the large-manufacturing business conditions DI was +15 and large nonmanufacturing DI was +34. Manufacturing DI has improved modestly from +12 in Q1 2025, indicating resilient corporate sentiment.
Medium-sized manufacturing DI was +16 and small manufacturing DI was +6, showing a tendency for smaller firms to report more cautious conditions. Nonmanufacturing DIs remain higher than manufacturing, reflecting strength in domestically oriented sectors.
The large-manufacturing forward-looking DI was +12 (flat), indicating firms expect current conditions to persist. This forward-looking sentiment is closely linked to financial conditions: as long as the BOJ normalizes its balance sheet at a gradual pace while maintaining financial market stability, corporate funding conditions should remain favorable.
However, an acceleration of QT or an unexpected rise in market rates could raise corporate funding costs, adversely affecting capex and employment. The BOJ therefore needs to monitor corporate sentiment and market developments and adjust the normalization pace prudently.
With JGS holdings of ¥545.6 trillion, interest rate increases carry the risk of large mark-to-market valuation losses. A 100 bps rise in long-term yields could reduce the market value of holdings by tens of trillions of yen and potentially erode the BOJ’s equity capital.
Per the IMF Global Financial Stability Report framework, central bank financial strength can influence confidence in monetary policy. Legally, the BOJ can continue to conduct policy even if it records accounting losses, but losses could undermine market confidence or perceived legitimacy of policy decisions.
Assuming the current normalization pace continues, one can project a path for the decline in JGS holdings. If the year-on-year -8.26% contraction observed at end-January 2026 were to persist, total assets would shrink at roughly ¥56 trillion annually. Assuming the JGS share remains at 79.9%, JGS holdings would decline at roughly ¥45 trillion per year.
However, the January 2026 month-on-month increase in JGS holdings of ¥1.1876 trillion demonstrates that the pace of decline is not constant. Monthly variations will occur due to maturity timing, market liquidity conditions, and shifts in policy stance. Long-term normalization is likely to proceed as a downward trend punctuated by short-term increases and decreases.
Several risk scenarios could complicate the BOJ’s normalization. The first scenario is a renewed acceleration in domestic inflation prompting the BOJ to speed up rate hikes. In that case, valuation losses on JGS and an accelerated QT pace could occur simultaneously, creating significant market stress.
The second scenario is synchronized global QT. If the FRB, ECB, and BOJ all accelerate balance sheet reduction together, global liquidity could contract rapidly, increasing market volatility, inducing capital outflows from emerging markets, and exerting upward pressure on global yields.
The third scenario is an unexpected Japanese economic downturn. Faced with recession risks, the BOJ might pause or reverse normalization and return to a more accommodative stance. The January 2026 increase in JGS holdings could be interpreted as indicative of such policy flexibility.
BOJ balance sheet normalization is a long, complex process. January 2026 data indicate that normalization is proceeding on trend but with month-to-month variability. Key items to monitor going forward are:
Normalization must balance financial market stability, real-economy impacts, and fiscal/financial soundness. The February 2026 data gap limits the current assessment, but January 2026 figures suggest the BOJ is pursuing a cautious and flexible normalization path.
Data sources
Passive QT (quantitative tightening): A method by which a central bank allows its balance sheet to decline naturally by stopping or reducing reinvestment of maturing government bonds and other securities. Contrasts with active sales (active QT).
Flow effect: The short-term impact on supply/demand and price formation in financial markets from the central bank’s monthly purchases or sales of assets. In QT, monthly reductions in government bond holdings affect market interest rates.
Stock effect: The persistent impact on long-term yields and the term premium resulting from the cumulative stock of assets held by the central bank. Large-scale government bond holdings can structurally compress long-term yields.
Current account balances / total assets ratio: The share of total assets represented by financial institutions’ current account balances (reserves) at the BOJ. This ratio indicates the abundance of liquidity within the financial system.
Policy assets: Assets purchased and held by the BOJ as part of monetary easing policy, including ETFs, J-REITs, and corporate bonds. These are non-traditional policy instruments distinct from JGS holdings.
Excess reserves: Reserves that financial institutions hold at the BOJ above legally required reserve amounts. Large quantities were supplied during the QQE period and remain on banks’ balance sheets.
Term premium: The component of long-term bond yields that compensates investors for interest-rate risk over the maturity horizon. Large central bank holdings of government bonds tend to compress the term premium.
Monetary base: The total quantity of currency directly supplied by the central bank, defined as banknotes in circulation plus financial institutions’ current account balances (reserves).
This column was automatically generated by AI integrating Bank of Japan balance sheet data (Statements of Account), Federal Reserve (FRED), and ECB statistics as a BOJ balance sheet analysis resource. This is not a recommendation to buy or sell any financial instruments. Please make investment decisions at your own responsibility and consult professionals as needed.