BOJ contributes record $13.8b to govt.

The Bank of Japan (BOJ) contributed a record ¥2.17 trillion ($13.8 billion) to the government in fiscal year 2023, though rising interest rates raise concerns about the central bank’s financial sustainability, the Nikkei Asia reported on Thursday.

The BOJ’s final profits after expenses and taxes reached a record high, with payments to the government increasing roughly 10 per cent year-on-year for the period ending March 31, 2024.

The central bank’s profits stemmed from holdings of exchange-traded funds (ETFs) and bonds acquired under its unconventional monetary easing programme to combat deflation.

The bank saw gains from ETFs in the last fiscal year, boosted by higher dividends from publicly traded companies. It also earned more from Japanese government bonds (JGBs), with a JGB portfolio valued at ¥589 trillion by year-end.

Higher interest rates have led to increased bond yields but also squeesed bond prices, resulting in unrealised losses on JGB holdings. These paper losses have minimal impact on actual income as the BOJ plans to hold the bonds until maturity.

The bank ended its negative interest rate policy in March and now targets a positive policy rate by offering a 0.1 per cent interest rate on deposits by private-sector financial institutions.

Based on fiscal 2023 data, the BOJ could face an operating loss when the policy rate reaches around 0.6 per cent, according to Takahide Kiuchi of the Nomura Research Institute.

Kiuchi acknowledges that reaching a policy rate of 2.8 per cent “seems unlikely even in the distant future,” but a sustained increase in the policy rate could raise concerns about the BOJ’s finances.