BOJ's net income falls due to higher interest payments on reserves

TOKYO: The Bank of Japan saw net income fall in fiscal 2025 as rising interest rates boosted payments made on excess reserves parked with the central bank, its earnings data showed on Wednesday.

Since exiting a decade-long, massive stimulus programme in 2024, the central bank has raised its short-term policy rate several times, including in December to 0.75% from 0.5%.

The BOJ thus pays 0.75% interest on the excess reserves financial institutions park with the central bank under a programme aimed at controlling money market rates around its policy rate.

The BOJ spent 2.7 trillion yen ($16.95 billion) on such interest payments in the fiscal year ending in March, much higher than the previous year’s 1.3 trillion yen and exceeding the 2.5 trillion yen interest it earned from its government bond holdings, the data showed.

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It was the first time the BOJ’s interest payment on reserves exceeded the amount of interest earned from its bond holdings, highlighting the cost of normalising monetary policy.

As a result, the BOJ saw net income shrink to 1.9 trillion yen in fiscal 2025 from 2.3 trillion yen in the previous year, the data showed.

Aside from raising its short-term policy rate, the BOJ has been slowing bond purchases to scale back its massive balance sheet as part of its policy normalisation efforts.

Due in part to shrinking government bond holdings, the BOJ’s total asset balance fell 9.1% as of the end of fiscal 2025 from a year earlier, the data showed. Japan’s fiscal year runs from April to March of the following year.