Record-High Nikkei Index Enriches Bank of Japan, While Other Major Central Banks Struggle with Losses

The Nikkei 225 Index approaches the 40,000 milestone, surpassing the all-time high (38957.44) set in December 1989. As of Friday (March 1st), it closed at 39,910.82. The Bank of Japan, which continues to buy Japanese stock and stock ETFs, has a floating book profit reached 32 trillion yen.

Source: Moomoo

The Bank of Japan, which has implemented Quantitative and Qualitative Easing (QQE) for several years, is one of the few central banks that has not yet raised interest rates. As of February 20, 2024, the Bank of Japan's balance sheet has swelled to a total size of 758.28 trillion yen, far exceeding the GDP for 2023, which was 591 trillion yen. The Bank of Japan holds approximately 598.6 trillion yen in Japanese Government Bonds (JGBs) and about 37.19 trillion yen in stock ETFs (which accounts for a 4% share).

The Federal Reserve wasn't as fortunate as the Bank of Japan. On January 12th, the US Federal Reserve posted its biggest ever operating loss in 2023. The Reserve Bank's income after expenses came in at a negative $114.3 billion, versus $58.8 billion in positive income the year before.

The quantitative easing (QE) at the time led the Federal Reserve to purchase a large amount of U.S. Treasuries, and the aggressive interest rate hikes over the past year pushed short-term rates above 5%, causing a sharp drop in the value of Treasuries on the Fed's balance sheet.

Similar to the Fed, the European Central Bank also reported a record annual loss for 2023 and said further losses were likely as its aggressive interest rate hikes force it to pay out billions of euros to banks.

It reported losses of 1.3 billion euros ($1.4 billion), which would have been steeper, had the bank not released 6.6 billion euros - its entire provision for financial risks, built up over a number of years.

The Swiss National Bank is even worse. As early as 2022, The Swiss National Bank posted an annual loss of 132 billion Swiss francs ($143 billion), the biggest in its 115-year history as falling stock and fixed-income markets hit the value of its share and bond portfolio. In 2023, the Swiss National Bank continued to suffer losses, though the extent of the losses decreased to 3.54 billion U.S. dollars.

What does the future hold? Fortunately, there's a high probability that 2024 will see a "global wave of interest rate cuts," with the European Central Bank, the Federal Reserve, and the Bank of England expected to cut interest rates and end QT at the right time. While the Bank of Japan might be the only central bank that could potentially raise interest rates.

Source: CNBC, Reuters, Fed, Bank of Japan, ECB, Swiss National Bank