A recent post questioned why Japanese bank reserves had fallen in early 2013 despite continued significant Bank of Japan (BoJ) asset purchases. It concluded that reserves weakness reflected a seasonal rise in the government’s balance at the BoJ and was likely to reverse in late March / April as this balance was run down.
Japanese reserves have, indeed, risen sharply in recent days, reaching a new yen record this morning – see first chart. Current asset purchase plans suggest a further rise of 63% by end-2013 but the BoJ is under strong pressure to expand these plans at its meeting next week – the first under its new leadership.
The Fed, meanwhile, last week gave no hint of any slowdown in its $85 billion per month pace of securities buying, which should continue at least through mid-year.
G3 bank reserves are currently still well down from end-2012, reflecting a Eurozone fall due to banks repaying borrowings in the two three-year longer-term refinancing operations conducted in December 2011 and February 2012 – second chart. Eurozone reserves, however, should stabilise or recover as the heavy losses imposed on uninsured depositors in the two largest Cypriot banks encourage precautionary outflows from weaker institutions in other countries, increasing their need for ECB funding.
The G3 reserves total, therefore, is likely to sustain its recent pick-up, reaching a new record later in the spring.
