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Semiannual Report on Currency and Monetary Control (Summary)
First Half of Fiscal 2017 (April-September 2017)

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

Bank of Japan

Economic Developments

  1. Looking back at the first half of fiscal 2017, Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating.

    Exports followed an increasing trend on the back of growth in overseas economies. Turning to domestic demand, public investment increased, and housing investment was more or less flat. Business fixed investment was on a moderate increasing trend, with corporate profits improving. Private consumption increased its resilience against the background of steady improvement in the employment and income situation. Reflecting these developments in demand both at home and abroad, industrial production 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) was in the range of 0.5-1.0 percent, with the rate of increase accelerating. Inflation expectations remained in a weakening phase, although some indicators showed an uptrend in such expectations, after hitting bottom around summer 2016.

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 rose, mainly on the back of favorable corporate earnings, amid a rise in stock prices in the United States and Europe, and was in the range of 20,000-20,500 yen at end-September.

    In the foreign exchange market, the yen was more or less flat against the U.S. dollar, albeit with fluctuations, and was in the range of 112-113 yen at end-September. The yen continued to depreciate against the euro with uncertainties regarding political situations in Europe abating, and was in the range of 132-133 yen at end-September.

  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 at a moderate pace, and was at around 3 percent as of September. The year-on-year rates of change in the amounts outstanding of CP and corporate bonds were positive at relatively high levels.

  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 15-20 percent. The year-on-year rate of change in the money stock (M2) was at around 4 percent.

Monetary Policy Meetings (MPMs)

  1. Four MPMs were held in the first half of fiscal 2017.

    At the MPMs held in April and June, the Policy Board judged that Japan's economy was turning toward a moderate expansion. At the MPMs held in July and September, it judged that the economy was expanding moderately, with a virtuous cycle from income to spending operating.

  2. In the conduct of monetary policy, at all the MPMs held in the first half of fiscal 2017, 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 first half of fiscal 2017: "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-September, the Bank's total assets amounted to 513.4 trillion yen, an increase of 12.4 percent from the previous year.