Portfolio rebalancing after start of QQE in Japan

The Bank of Japan (BoJ) introduced its quantitative and qualitative easing (QQE) policy in April 2013 to achieve its price stability target of a 2% YoY increase in the CPI within about two years. Two years have passed, but inflation is stuck at around 0%. Meanwhile, one of the benefits expected from QQE was portfolio rebalancing. The expectation was that if JGB yields declined as a result of the BoJ's large-scale JGB purchases, portfolios would be rebalanced toward a higher weighting in risk assets, which have higher expected returns. There was in fact a change in the composition of investor portfolios over the past two years.

The BoJ's unexpected expansion of QQE in October 2014, which came at the same time the Government Pension Investment Fund (GPIF) announced changes in its policy asset mix, created even more expectation of this portfolio rebalancing effect. In addition, to promoting the shift of household funds out of savings into investments, small tax-exempt savings accounts (NISA) were introduced in January 2014. This report summarizes the extent to which portfolios have been rebalanced over the two years from QQE's introduction until March 2015, says BofA Merrill Lynch .