Central bank policies continue to provide support for risk assets, with the Bank of Japan today announcing a further ¥10 trillion expansion to ¥40 trillion in planned securities purchases, implying buying of ¥25 trillion – $310 billion – between now and mid-2013 (since the portfolio currently stands at ¥15 trillion).
The link between asset purchases and bank reserves (i.e. cash held by banks at the central bank) is looser in Japan than in the US and UK but it would be surprising if this buying failed to result in a further substantial injection of liquidity – reserves have risen by ¥8 trillion since the announcement on 14 February of an expansion in securities purchases from ¥20 trillion to ¥30 trillion.
Aggregate bank reserves in the US, Japan, Euroland and the UK recently reached a new record, a development that may help to explain the resilience of global equities to another rise in European financial tensions and moderately disappointing economic news. The increase since mid-2011, however, has been concentrated in Europe, with US reserves static.