Despite balance sheet reduction, the Bank of Japan remains the dominant force in Japan’s bond market: The Bank of Japan now holds ~46% of Japanese government bonds (JGBs), down -8 percentage points from its 2023 peak and its lowest proportion since 2021. Yet, the BoJ still holds more JGBs than banks, life insurers, pension funds, and foreign investors combined. By comparison, the BoJ owned just ~10% of JGBs in 2013. This comes despite BoJ holdings of JGBs dropping -$310 billion over the 12 months ending in July, their largest 12-month decline in history. This brought the BoJ’s total JGB holdings down to ~$3.3 trillion, its lowest since 2020, but still +400% above 2012 levels. The BoJ is stepping back, but it still controls Japan’s bond market.(The Kobeissi Letter)