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Semiannual Report on Currency and Monetary Control (Summary)
Second Half of Fiscal 2016 (October 2016-March 2017)

-- The semiannual report was submitted to the Diet in June 2017.

Bank of Japan

Economic Developments

  1. Looking back at the second half of fiscal 2016, Japan's economy continued its moderate recovery trend, with a virtuous cycle from income to spending being maintained.

    Exports followed an increasing trend after having picked up, with the effects of the slowdown in emerging economies waning. Turning to domestic demand, public investment and housing investment were more or less flat. Business fixed investment was on a moderate increasing trend as corporate profits improved. Private consumption was resilient against the background of steady improvement in the employment and income situation. Reflecting these developments in demand both at home and abroad, industrial production picked up and then followed an increasing trend.

  2. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) became about 0 percent, after increasing gradually from being slightly negative. Inflation expectations remained in a weakening phase as an adaptive component played a large role in their formation, with the observed inflation rate being about 0 percent or slightly negative.

Financial Developments

  1. Money market rates were at low levels on the whole.

    Turning to developments in the bond market, the long-term interest rate was stable at the target level of around zero percent under "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control."

    The Nikkei 225 Stock Average was more or less flat until early November, and then rose significantly through end-2016 with a global rise in stock prices mainly stemming from expectations for the new U.S. administration's economic policy. Thereafter, it remained more or less flat and was in the range of 18,500-19,000 yen at end-March.

    In the foreign exchange market, through end-2016, the yen depreciated against the U.S. dollar, in a situation where the dollar appreciated against many currencies, mainly reflecting a rise in U.S. interest rates. Thereafter, due in part to a halt to the rise in U.S. interest rates and heightened uncertainties regarding political situations in Europe, the yen appreciated against the U.S. dollar and was in the range of 111-112 yen at end-March. The yen depreciated against the euro and was in the range of 119-120 yen at end-March.

  2. As for corporate finance, in terms of credit supply, financial institutions' lending attitudes as perceived by firms were highly accommodative.

    Firms' credit demand increased, mainly for funds related to mergers and acquisitions and funds for business fixed investment. With regard to firms' funding, the year-on-year rate of increase in the amount outstanding of lending by domestic commercial banks accelerated moderately and was 3 percent in March. The year-on-year rates of change in the amounts outstanding of CP and corporate bonds were positive.

  3. The monetary base (currency in circulation plus current account balances at the Bank) continued to increase at a high year-on-year growth rate in the range of 20-25 percent. The year-on-year rate of growth in the money stock (M2) was around 4 percent.

Monetary Policy Meetings (MPMs)

  1. Four MPMs were held in the second half of fiscal 2016.

    At the MPM held in October 2016, the Policy Board judged that Japan's economy continued its moderate recovery trend, although exports and production were sluggish, due mainly to the effects of the slowdown in emerging economies. At the MPMs held in December 2016 through March 2017, it judged that the economy continued its moderate recovery trend.

  2. In the conduct of monetary policy, at all the MPMs held in the second half of fiscal 2016, the Policy Board decided to continue with the following guidelines for market operations and asset purchases under "QQE with Yield Curve Control" determined at the MPM held in September 2016.

    (1) Yield curve control

    The Bank decided to set the following guideline for market operations for the intermeeting period.

    The short-term policy interest rate:
    The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.

    The long-term interest rate:
    The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.

    (2) Guidelines for asset purchases

    With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

    1. a) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively.
    2. b) As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.

With regard to the future conduct of monetary policy, the Policy Board confirmed the following at all the MPMs held in the second half of fiscal 2016: "the Bank will continue with 'QQE with Yield Curve Control,' aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target."

The Bank's Balance Sheet

  1. As of end-March, the Bank's total assets amounted to 490.1 trillion yen, an increase of 20.8 percent from the previous year.