BOJ's JGB holdings exceed self-imposed cap

TOKYO Mon Aug 13, 2012 9:12pm EDT

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TOKYO Aug 14 (Reuters) - The Bank of Japan's holdings of government bonds exceeds its self-imposed cap when bonds taken up under its asset-buying programme are included, a sign that its ultra-easy monetary policy is drawing it closer to bankrolling public debt.

The balance of the BOJ's government holdings totaled 80.97 trillion yen ($1.03 trillion) as of Aug. 10, exceeding the 80.79 trillion yen worth of bank notes in circulation, data released by the central bank showed on Tuesday.

With interest rates virtually at zero, the BOJ created a pool of funds in October 2010 to buy assets ranging from government bonds to private debt to nudge down borrowing costs and support a fragile economy.

The central bank has topped up the asset-buying fund several times, with the target now at 45 trillion yen, of which 29 trillion yen is set aside for purchases of government bonds by the end of June 2013.

The BOJ also buys 21.6 trillion yen in government bonds annually under a separate market operation to funnel long-term funds to the economy.

Wary of giving markets the impression it is monetising debt and making a future exit from ultra-easy policy difficult, the BOJ has in place a self-imposed rule limiting the balance of its bond holdings to the value of bank notes in circulation.

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