The BOJ’s total assets have climbed to ¥229 trillion, or 48 percent of the nation’s nominal gross domestic product. The central bank aims to increase its balance sheet further to ¥290 trillion by the end of this year.
In contrast, the Federal Reserve’s assets were equivalent to 24 percent of the U.S. GDP. With the central bank reducing its monthly bond buying by $10 billion to $75 billion starting in January, economists polled forecast the Fed will keep cutting purchases and end the program this year.
“It may be too late to prevent long-term rates doing something crazy” should the BOJ hold off on tapering before inflation reaches the target, said Richard Koo, the chief economist in Tokyo at Nomura Research Institute Ltd. The stimulus is leaving Japan at risk of falling into a quantitative-easing “trap” of being unable to taper without a surge in long-term rates and subsequent damage to the recovery, according to Koo, a former Federal Reserve economist.
Japan’s consumer prices excluding fresh food but not energy — the BOJ’s policy target — rose 1.2 percent in November. The core inflation rate has advanced from negative 0.5 percent in March, the lowest in two years. Its goal is 2 percent inflation.
“The BOJ will probably reaffirm that its stance remains the same and explain a slowdown in purchases isn’t a deliberate reduction,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest financial group by market value.
“If the tax hike badly hurts the economy, the BOJ will provide additional stimulus without any hesitation.”