The most important change in the BOJ’s August 2026 balance sheet was that the monthly increase in JGS holdings nearly halved to ¥545.8 billion from ¥1,039.5 billion the previous month, making the increase in JGS holdings during a non-redemption month the smallest in the past year. Total assets were ¥644.7 trillion, essentially unchanged month on month with an increase of ¥366.3 billion, but continued to contract at a double-digit rate year on year, down 10.96%. The 12-month cumulative change in JGS holdings deepened to -¥51.7 trillion from -¥49.5 trillion the previous month, although most of the change reflects a base effect as the large increase in August of the previous year (+¥2.7501 trillion) dropped out of the measurement period. On the liabilities side, current account balances declined by ¥13.6903 trillion month on month to ¥424.3 trillion, reducing their share of total assets to 65.8% from 72.3% one year earlier, a decline of 6.5 percentage points.
Flow Analysis: Non-Redemption-Month Accumulation Narrows, 12-Month Cumulative QT Reaches -¥51.7 Trillion
The BOJ’s balance sheet contraction is proceeding in a sawtooth pattern: large redemptions at quarter-end and modest accumulation in other months. The accumulation narrowed in August. According to the BOJ Statements of Account, the month-on-month changes in JGS holdings over the past 12 months show the following structure.
| Phase | Applicable months | Month-on-month change in JGS holdings (¥100 million) |
|---|---|---|
| Quarter-end (large redemptions) | 2025-12 / 2026-03 / 2026-06 | -153,987 / -158,104 / -147,932 |
| Non-redemption months (accumulation) | 2026-04 / 2026-05 / 2026-07 | +10,793 / +11,867 / +10,395 |
| Current month | 2026-08 | +5,458 |
The table shows that the +¥545.8 billion increase in August was the smallest accumulation in the past year. Quarter-end declines have remained stable in a range of ¥14.8 trillion to ¥15.8 trillion, with no major change evident in the redemption schedule. However, the reason for the halving of the increase in non-redemption months cannot be identified from the balance data in the Statements of Account alone. Both a change in the amount of purchases and a mismatch in settlement timing associated with the ten-day reporting schedule remain possible interpretations. Rather than concluding that policy has changed based on a single month, the development should be confirmed by the accumulation in October and November, following the September quarter-end redemption month.
The deepening of 12-month cumulative QT from -¥49.5 trillion to -¥51.7 trillion also requires avoiding a mechanical interpretation. The -¥2.2 trillion difference can largely be explained by the difference between the August increase that dropped out of the sample (+¥2.7501 trillion) and the current-month increase (+¥545.8 billion). Back-calculating from the recurring annual pattern—approximately four quarter-end declines of ¥15 trillion each and eight non-redemption-month increases of approximately ¥1 trillion each—the current structural pace of contraction is in the low-¥50-trillion range annually. The implication of August is that the effective pace has room to accelerate further because the non-redemption-month flow that forms the denominator of this structure has narrowed.
Stock Analysis: JGS Share Holds at 80.7%; Loans Account for One-Third of the Contraction
The defining feature of the asset composition is that the share of JGS holdings has barely moved even as the balance has contracted. This is because total assets, the denominator, have contracted at a similar pace.
| Item | 2025-08 | 2026-08 | Change |
|---|---|---|---|
| Total assets (¥ trillion) | 724.0 | 644.7 | −79.3 |
| JGS holdings (¥ trillion) | 571.6 | 519.9 | −51.7 |
| Loans outstanding (¥ trillion) | 97.5 | 71.9 | −25.6 |
| JGS holdings / total assets (%) | 79.0 | 80.7 | +1.7pt |
| Loans outstanding / total assets (%) | 13.5 | 11.1 | −2.4pt |
The implication of this table is clear. Of the ¥79.3 trillion contraction in total assets, JGS holdings account for approximately 65% and loans outstanding for approximately 32%. The BOJ’s balance sheet contraction is supported not only by JGS redemptions but also by a second engine: the decline in loans outstanding. Loans outstanding fell sharply by ¥9.7 trillion in June, rebounded by ¥3.9 trillion in July, and then remained flat at ¥71.9 trillion in August. As the balance declines, the scope for further contraction in loans outstanding will diminish, increasing the future dependence of total asset contraction on JGS redemptions.
Policy assets—ETFs, J-REITs, and corporate bonds—stood at ¥37.0 trillion, ¥0.7 trillion, and ¥1.4 trillion, respectively, for a combined share of 6.0%. ETF holdings declined modestly by ¥26.3 billion in August, marking their eighth consecutive monthly decline since January 2026. Even so, the policy-asset share rose from 5.7% one year earlier. The ratio increases despite a decline in nominal holdings because total assets, the denominator, are contracting more rapidly. The relative weight of risk assets therefore continues to rise. The corporate-bond share declined from 0.5% to 0.2%, indicating that the run-off of these holdings is in its final phase.
Liquidity Conditions: Current Account Balances Fall to 65.8% of Assets, Down 6.5 Points in One Year
On the liabilities side, current account balances are declining faster than the balance sheet as a whole, clearly changing the liquidity structure. Current account balances fell ¥99.3 trillion year on year, or 19.0%, far exceeding the 10.96% year-on-year decline in total assets. Their 65.8% share of total assets is the lowest level during the observation period beginning in August 2025.
The notable point is that current account balances fell by ¥13.6903 trillion in August even though total assets increased slightly by ¥366.3 billion. This movement cannot be explained by contraction on the asset side and indicates an internal shift in the liability composition caused by an increase in liabilities other than current account balances. However, the breakdown is not included in the present data and cannot be identified. A similar movement in the opposite direction was observed in April 2026: total assets increased by ¥1.1215 trillion, while current account balances rose by ¥9.6869 trillion. It is therefore not valid to directly equate the monthly change in current account balances with progress in balance sheet contraction.
Banknotes in circulation stood at ¥114.9 trillion, bringing the combined total of banknotes and current account balances to ¥539.2 trillion. Banknotes are determined by demand for cash, so as current account balances decline, banknotes passively account for a larger share of liabilities. The scope for further declines in current account balances is bounded by the reserve demand financial institutions require for settlement. If the annual pace of -¥99 trillion continued, the balance would reach approximately ¥330 trillion in one year. The first stress point would be whether rate formation in short-term financial markets begins to move upward during this process. The key indicator to monitor is whether spreads in the repo and call markets widen when funds become unevenly distributed at month-end and quarter-end.
Global Comparison: ECB Matches the BOJ on a Monthly Basis as the FRB Enters an Expansionary Phase
The normalization phases of the three central banks have diverged in 2026. To overcome differences in currency units, the comparison uses changes from January 2026 as the starting point.
| Central bank | 2026-01 | 2026-08 | Seven-month change | Monthly average |
|---|---|---|---|---|
| BOJ (¥ trillion) | 682.9 | 644.7 | −5.6% | −0.82% |
| FRB (USD trillion) | 6.59 | 6.73 | +2.1% | +0.30% |
| ECB (EUR trillion) | 6.29 | 5.91 | −6.0% | −0.88% |
The comparison shows that the BOJ is no longer the fastest-contracting central bank. The ECB’s monthly average of -0.88% exceeds the BOJ’s -0.82%, and its cumulative contraction over seven months is also larger. By contrast, the FRB expanded by 2.1% over the same period. Although its balance sheet edged down from USD 6.74 trillion to USD 6.73 trillion in August, its overall direction indicates that it has moved out of a contractionary phase.
The BOJ’s year-on-year decline of 10.96% is exceptional among the three central banks, but this reflects the elevated level of ¥724.0 trillion in August 2025. On a comparable monthly basis, the reality is closer to an approximately equivalent pace of normalization in Japan and Europe. In addition, only the BOJ holds equity-like assets such as ETFs and J-REITs, making the treatment of these 6.0% of policy assets a unique exit issue that does not arise for the other two central banks.
Consistency with the Inflation Environment: Core CPI Slows to 1.8%
Prices are slowing while balance sheet contraction continues. According to the Statistics Bureau of Japan, core CPI declined from 3.0% in November 2025 to 1.8% in July 2026, while core-core CPI slowed from 3.0% to 1.9%. Since February 2026, core CPI has remained in a range of 1.4% to 1.8%, stable at a level slightly below 2%.
- When inflation is stable near 2%, there is little need to accelerate the pace of balance sheet contraction further
- The narrowing of JGS accumulation in August (+¥545.8 billion) represents a move toward a faster effective pace and runs counter to the direction of slowing inflation
- The relationship between the two is limited to a contrast in direction; the policy stance cannot be inferred from a single month’s flow
It is important here to avoid confusing the time bases. CPI is measured year on year, while JGS holdings are measured month on month; their monthly co-movement cannot be discussed on a like-for-like basis. An assessment of consistency must be limited to the relationship between levels: the level of inflation, near 2%, and the annual pace of balance sheet contraction, -¥51.7 trillion.
Real Economy and Corporate Sentiment: Improvement Coexists with Contraction
Economic indicators are improving alongside balance sheet contraction. The Cabinet Office’s Composite Index of Coincident Economic Indicators stood at 116.5 for the leading index in June 2026 and 118.5 for the coincident index, clearly higher than the August 2025 levels of 106.9 and 113.9, respectively. Only the lagging index declined, from 112.7 to 111.8, indicating that the response in employment and capital investment has not caught up with the improvement in the leading and coincident indexes.
In the BOJ Tankan, the business conditions DI for large manufacturers rose from 14 in Q3 2025 to 22 in Q2 2026, while the DI for nonmanufacturers remained high at 37. The DI for small and medium-sized manufacturers also improved from 1 to 9. It is a fact that an annual balance sheet contraction of ¥51.7 trillion coexists with improving business sentiment. However, the present data do not include series on market interest rates or corporate funding costs, so the impact of the contraction pace on financing conditions cannot be evaluated causally. What can instead be confirmed is the cautious stance reflected in the large manufacturers’ outlook DI of 14, which is 8 points below their current assessment of 22.
Structural Consistency: Three Cross-References
Balance sheet × monetary policy: The annual decline of ¥99.3 trillion in current account balances works to tighten the supply-demand balance in short-term financial markets by compressing excess reserves. Because call-rate and monetary-base statistics are unavailable for this month, verification on the rate front is deferred until subsequent months. The question to examine is whether short-term interest rates can remain stable as the current-account-balance ratio falls further from 65.8%.
Balance sheet × inflation: The distinction between flows and stocks is important here. Monthly changes in purchase flows affect market supply and demand immediately, whereas the level of ¥519.9 trillion in holdings, a stock measure, declines only gradually at an annual pace of -¥51.7 trillion. Theoretically, the stock-level effect works to suppress long-term interest rates, but the present data do not include interest-rate series, so its magnitude cannot be verified. What can be confirmed is that the pace at which holdings are running off is slower than the pace of inflation changes.
Three-central-bank comparison: The fact that the BOJ and ECB are contracting at similar monthly rates while the FRB is expanding indicates that synchronization in global liquidity tightening has weakened. If the FRB’s expansion continues, the tightening pressure exerted by contraction in Japan and Europe on international financial markets will be partly offset.
Risk Assessment and Outlook
Interest-rate risk: The BOJ’s ¥519.9 trillion in JGS holdings this month consists entirely of long-term government bonds, with no short-term government bonds to shorten the remaining maturity. When long-term interest rates rise, this holdings structure can lead to larger valuation losses. Such losses would not be realized assuming the bonds are held to maturity, but their scale relative to capital and their implications for public finances through payments to the government remain issues. Because market-value information on JGS holdings is not included in the present data, quantitative evaluation must await publication of the financial statements.
Estimated contraction path: Assuming the current annual pace of -¥51.7 trillion continues, JGS holdings would reach approximately ¥468 trillion in one year and ¥416 trillion in two years. Total assets would be approximately ¥565 trillion in one year if the annual pace of -¥79.3 trillion continued, but because the scope for further contraction in loans outstanding will diminish, an actual slowdown is likely to emerge first on the total-assets side. The JGS share is expected to remain elevated in the 80% range, while the policy-asset share could rise further into the 6% range as the denominator contracts.
Risk scenarios:
- Reacceleration-of-inflation scenario: If core CPI rises again from the upper 1% range, the combination of the balance sheet contraction pace and interest-rate levels would need to be reconsidered, potentially increasing long-term interest-rate volatility
- Liquidity-stress scenario: Current account balances continue to decline and approach the lower bound of financial institutions’ reserve demand. An upward movement in short-term market rates would be the first signal
- Global-synchronization scenario: If the FRB resumes contraction and synchronizes with the pace in Japan and Europe, a rise in the international term premium could spill over into domestic long-term interest rates
The most important implication of the August data is that the accumulation of JGS holdings in a non-redemption month was halved, shifting the effective pace toward faster contraction. From the coming months, the two points to monitor are whether the September quarter-end decline remains within the ¥14.8 trillion–¥15.8 trillion range of the past four quarters and whether October’s accumulation returns to the ¥1-trillion range.
Data Sources
- Source: Bank of Japan, Statements of Account
- Source: Federal Reserve Bank of St. Louis (FRED)
- Source: European Central Bank, Statistical Data Warehouse
- Source: Statistics Bureau of Japan, Consumer Price Index; Cabinet Office, Composite Index of Coincident Economic Indicators; Bank of Japan, Tankan—Short-Term Economic Survey of Enterprises in Japan
Glossary
| Term | Definition |
|---|---|
| Passive QT | A quantitative tightening method in which the central bank stops reinvesting securities as they mature and allows holdings to decline naturally through redemptions. Compared with active QT, which involves market sales, it has a smaller direct impact on price formation. |
| Flow Effects and Stock Effects | Flow effects refer to the impact of a central bank’s monthly bond purchases or reductions on market supply and demand. Stock effects refer to the level effect whereby cumulative holdings suppress long-term interest rates or the term premium. The two operate on markets through different channels and time horizons. |
| Statements of Account | A list of the BOJ’s assets and liabilities published every ten days. It shows details including JGS holdings, ETFs, loans outstanding, current account balances, and banknotes in circulation, and serves as a primary source for balance sheet analysis. |
| Current Account Balances / Total Assets Ratio | The BOJ’s current account balances divided by total assets. It indicates the liquidity structure on the liability side; a decline in the ratio implies compression of excess reserves and pressure for tighter conditions in short-term financial markets. |
| Policy-Asset Ratio | The combined holdings of ETFs, J-REITs, and corporate bonds as a share of total assets. It indicates the BOJ-specific weighting of risk assets and creates a unique policy issue concerning their treatment during the exit phase. |
| Term Premium | The additional yield investors demand for holding long-term bonds. Large-scale central bank holdings are generally considered to work toward compressing this premium. |
| 12-Month Cumulative QT | A derived indicator calculated by summing the month-on-month changes in JGS holdings over the most recent 12 months. It captures the annual pace of normalization, but requires attention to base effects caused by the value dropping out of the measurement period. |
| Monetary Base | The total amount of money supplied by the BOJ, consisting of banknotes in circulation, coins in circulation, and BOJ current account balances. It is composed of major items on the liability side of the balance sheet. |
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.