BOJ Balance Sheet Flash — QT Pace ¥47.6tr (May 2026)

Loans outstanding remained at ¥77.7 trillion (11.7% of total assets), sustaining the levels observed since March 2026. The loans ratio has declined from 13.3% in March 2025, which may reflect changing funding needs of financial institutions.

Context: position within past movements — quarter‑end patterns and declining liquidity

Monthly JGS changes over the past 12 months display a clear quarter‑end pattern. Large declines occurred at quarter ends: March 2025 (‑¥12.6 trillion), June 2025 (‑¥13.2 trillion), September 2025 (‑¥14.9 trillion), December 2025 (‑¥15.4 trillion), and March 2026 (‑¥15.8 trillion). Subsequent months typically show modest increases around ¥1 trillion. This regularity likely stems from the interaction of maturity/redenomination schedules and reinvestment policies.

Looking at the 12‑month cumulative QT pace, the metric accelerated from ¥41.8 trillion in February 2026 to ¥47.6 trillion in May 2026 — a ¥5.8 trillion increase over three months. This acceleration reflects the gradual exit of smaller‑decline months from the 12‑month window and the accumulation of larger decline months since the second half of 2025. The annual pace is likely to continue accelerating.

On liquidity, the share of current account balances in total assets fell to 68.0%, down 2.8 percentage points from 70.8% the prior month. Current account balances declined sharply to ¥452.1 trillion, a ¥17.3 trillion (173,317億円) month‑on‑month reduction. This contraction occurred while total assets were roughly unchanged and suggests a change in the liability structure. The current account ratio has trended down from 72.7% in March 2025, indicating a gradual withdrawal of excess liquidity from the financial system.

Banknotes in circulation were ¥115.2 trillion, implying stable cash demand in the economy.

Context: corporate sentiment — improving conditions coexist with QT

According to the Tankan, for Q1 2026 the large‑manufacturing business conditions DI improved to 17 (leading indicator 15), and large non‑manufacturing improved to 36 (leading indicator 28), both continuing the improvement from the prior quarter. Mid‑sized manufacturers were 16 (unchanged), and small manufacturers improved to 7 from 6.

The coexistence of improving corporate sentiment and advancing passive QT suggests that normalization of monetary conditions has not yet manifested as a drag on the real economy. Nevertheless, with the continuing decline in the current account ratio, close monitoring of how liquidity conditions in financial markets evolve is warranted.

Outlook: accelerating QT pace and shifting liquidity structure

Key points to watch:

• First, the accelerating trend in the 12‑month cumulative QT pace. As the relatively small decline months from early 2025 roll out of the 12‑month window, the annual pace is likely to expand further in the coming months. In particular, once April 2025 (+¥2.3 trillion) and May 2025 (+¥2.5 trillion) drop out after end‑June 2026, the annual pace could approach ¥50 trillion.

• Second, the downward trend in the current account ratio. Although 68.0% remains a high level, it is 4.7 percentage points below the 72.7% seen in March 2025. How this gradual decline influences liquidity premia and short‑term rate formation will be a focal point.

• Third, the quarter‑end JGS reduction pattern. A large decline on the order of around ¥15 trillion is likely to recur at end‑June 2026 as in the past five quarter‑ends. It will be important to observe how that reduction transmits to total assets and current account balances.

Additional intramonth releases — including data on market operations and JGS market supply/demand — will be useful to understand the drivers behind balance sheet changes. The progression of passive QT is entering a phase where its effects on market functioning and financial institution behavior should be evaluated from multiple angles.

Glossary

パッシブQT（量的引き締め）: Passive QT (quantitative tightening): A policy method by which a central bank reduces its balance sheet gradually without active asset sales, by reducing or stopping reinvestment of maturing securities. The BOJ is implementing passive asset reduction by reinvesting only part of maturing JGS.

12ヶ月累計QTペース: 12‑month cumulative QT pace: The sum of month‑on‑month changes in JGS holdings over the most recent 12 months. This indicator shows the annualized speed of balance sheet reduction and smooths monthly volatility to assess structural QT progression.

当座預金比率: Current account ratio: The share of current account balances on the BOJ balance sheet relative to total assets. It indicates the level of excess liquidity in the financial system; a declining ratio signifies tightening liquidity conditions.

政策資産: Policy assets: The BOJ's holdings of ETFs, J‑REITs and corporate bonds acquired as part of monetary easing. These non‑traditional assets accumulated during QQE serve as a gauge of exit strategy progress as their balances change.

国債比率: JGS share: The ratio of JGS holdings to total assets on the BOJ balance sheet. It signals the centrality of JGS within the asset portfolio and reflects structural portfolio composition.

フロー効果: Flow effect: The short‑term impact of a central bank's monthly purchases or reductions in assets on market supply/demand and price formation. In the JGS market, changes in monthly purchase pace can be a driver of long‑term yield movements.

ストック効果: Stock effect: The persistent impact of accumulated central bank asset holdings on market interest rate levels and term premia. Large holdings of JGS can structurally suppress long‑term yields.

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.