TOKYO, Apr 23 (Reuters): Over 90 per cent of Japanese banks have increased loans and investment in riskier assets in the past year, the Bank of Japan (BOJ) said on Wednesday, suggesting that the wall of money it is pumping out is spilling over into the broader economy.
"Financial institutions have reduced investment in domestic bonds, especially Japanese government bonds (JGBs), while increasing investment in relatively high-risk assets such as loans," the central bank said in a semi-annual report analysing Japan's financial system.
The ratio of banks that increased investment in riskier assets, including loans, has gradually risen since last March and exceeded 90 per cent in February, according to a survey included in the report.
Banks are lending to a wider range of industries and are more keen to lend to small- and medium-sized companies whose appetite for loans is on the rise, the report said.
Bank lending rose 2.1 per cent in March from a year earlier, marking the 29th straight month of increase, with lending by regional banks up 3.2 per cent, a monthly BOJ data showed.
Japanese banks also continue to boost overseas lending, with loans to Asia by the top three megabanks having risen 20 per cent in the past three years, it said.
The BOJ's current quantitative easing programme, launched in April last year, aims to revive the economy and achieve 2 per cent inflation by around April next year by pumping massive amounts of money into the system via aggressive asset purchases.
Aside from the effect of weakening the yen and lifting stock prices, the central bank hopes that by pushing down bond yields it can nudge domestic banks into taking on more risk instead of sitting on their huge pile of JGBs.
Investing in 10-year JGBs currently yields just 0.6 per cent even as consumer inflation has accelerated to 1.3 per cent, as the BOJ gobbles up 70 per cent of new bonds issued every month.
BOJ Governor Haruhiko Kuroda told parliament on Wednesday that the central bank held 17 per cent of total JGBs issued in the market, making it the biggest investor. He said that ratio is likely to exceed 20 per cent next year.
While banks have reduced holdings of JGBs, they remain exposed to potential losses should long-term interest rates spike in the future, the report showed.
