Japanese banking sector assets as a share of GDP now at a record 211%

Total assets were up 5.5% in November 2016.

Japan's banking sector assets continue to grow at a rapid clip, at least by historical comparison, expanding by 5.5% y-o-y in November 2016, taking total assets as a share of GDP to a record 211%, according to BMI Research.

"To put this in perspective, the figure was fairly constant at 150% from the early-1990s to 2008. The rise following the Global Financial Crisis was driven by an increase in bond holdings as the government's fiscal deficit widened amid a collapse in revenue and rising spending, with the baton being passed onto increased cash assets following the Bank of Japan's (BoJ) Quantitative Easing expansion in 2013," says BMI.

Here's more from BMI Research:

We see total banking sector assets as a share of GDP as a good way to measure the inflationary potential in the Japanese economy. Although banks' current account balances (money held at the BoJ) are not inflationary in and of themselves (as they are not available to be spent in the economy), the process by which they arrive there is.

When the banking sector purchases bonds from the government as the government runs a fiscal deficit, the total amount of spending power in the economy increases as banks 'create the money' and effectively lend it to the government, which ultimately gets deposited back into the banking system.

When the BoJ then buys these bonds back from the banks, an 'asset swap' takes place and banks see a decline in their bond holdings and an increase in cash held at the central bank (current account balances).

Additionally, when banks extend loans directly to customers , these loans also show up as deposits in the banking sector. The chart below shows the current rapid pace of loan growth, which hit a new series high of 7.2% y-o-y in November.