Central banks around the world manage the composition and size of their balance sheets to achieve specific monetary policy goals. Economic conditions in Japan, however, have made this common tactic increasingly challenging.

The FRED graph above uses data from the World Bank’s Global Financial Development Database to show the value of assets held by the Bank of Japan (solid line) and the Federal Reserve System of the United States (dotted line). Those values are plotted as a percent of GDP to easily compare their change in relation to the overall economic activity in each country.

It’s obvious there are large differences between Japan and the US: The Fed started growing the size of its balance sheet during the global financial crisis that emerged in 2007. Japan’s central bank started a decade earlier and substantially accelerated that trend after 2012. The latest data available at the time of this writing shows that, in 2021, the value of the Bank of Japan’s assets is equivalent to 89% of their overall economic activity.

Recent research from YiLi Chien and Ashley Stewart at the Federal Reserve Bank of St. Louis offers insights into the economic implications: Given the different types of assets held by the Japanese government and its central bank, tightening monetary policy could result in losses to the value of their stock and foreign currency assets. Thus, the potential pull-and-push between monetary and fiscal policy is particularly pronounced in Japan.

For more about this and other research, visit the publications page of the St. Louis Fed’s website, which offers an array of economic analysis and expertise provided by our staff.

How this graph was created: Search FRED for and select “Central Bank Assets to GDP for Japan.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Central Bank Assets to GDP for United States.”

Suggested by Diego Mendez-Carbajo.