Volume 9 Issue 3 ( September 2022 )


Quantitative Easing-II and the State of Japanese Banks’ Portfolio Rebalancing and Financial Performance

Munim Kumar Barai


The Bank of Japan (BOJ) started the second quantitative easing (QE-II) measure in 2013 to infuse easy money into the economy to kickstart growth and overcome deflation. The policy was expected to transmit and work in the economy through interest rate, portfolio rebalancing, and expectations in the financial markets to affect the economy positively. However, a prolonged low interest rate, a sustained decline in borrowers’ loan demand and the huge asset-buying measures under QE-II put pressure on Japanese banks. Lately, Covid-19 has added further stress on them to affect their financial performance as BOJ has continued to pursue the loose monetary policy to lower the economic impact of the pandemic. This paper makes an attempt to find how Japanese banks have been trying to address these challenges through rebalancing their portfolios of assets and liabilities. It also analyzes the changes in their financial performance in the post-2013 period. Financial variables like profits, productivity (return on asset or ROA and return on equity or ROE), net interest margin (NIM) and non-performing loans (NPLs) have been accepted for the performance measurement of the banks. The research finds that there is no substantial rebalancing of banks’ financial portfolios while their financial performance has been adversely affected during QE-II. Covid-19 has added further pressure on their performance variables as well. Internal and external economic developments, however, suggest that the BOJ may now seriously reconsider its negative interest policy and opt for tapering the QE policy.

Keywords: Japan; Quantitative Easing; Banks; Portfolio; Financial performance