Profits at the Bank of Japan have soared to thirteen-year highs on higher income from the bonds it has been buying and gains on foreign currency assets, but the asset pile up could pose problems when the central bank eventually starts tapering.
A little over two years into a massive asset purchase program, the BOJ has been expanding its balance sheet at an unprecedented pace.
For now, those asset purchases are paying off, according to the BOJ's financial statements published on Wednesday. For the fiscal year that ended in March 2015, the BOJ reported net income of 1.009 trillion yen ($8.1 billion), up 28 percent on-year, and the highest level in thirteen years.
Most of the boost has come from a surge in interest income on the bonds that the central bank has been buying up, as well as gains on foreign currency assets on a sharply weaker yen.
But expanding the central bank's balance sheet carries its own risks down the road, analysts warned.
"When the BOJ tapers, it could be facing negative capital not seen in modern history – and may have to ask the government for a capital injection," JP Morgan senior economist Japan Masamichi Adachi told CNBC by phone.
The BOJ expanded its asset purchases to 80 trillion yen a year at the end of last October, and now owns around a quarter of total outstanding of Japanese government bonds (JGB).