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Semiannual Report on Currency and Monetary Control (Summary)
Second Half of Fiscal 2018 (October 2018-March 2019)

-- The semiannual report was submitted to the Diet in June 2019.

Bank of Japan

Economic Developments

  1. Looking back at the second half of fiscal 2018, Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating, although exports and production were affected by the slowdown in overseas economies.

    Exports and industrial production had followed an increasing trend but then showed some weakness through the end of the second half of the fiscal year. On the other hand, corporate profits and business sentiment stayed at favorable levels on the whole, albeit with some weakness observed in part, and business fixed investment continued on an increasing trend. Private consumption increased moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Housing investment was more or less flat; public investment also was more or less flat, remaining at a relatively high level.

  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. Inflation expectations were more or less unchanged.

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 followed a downtrend, reflecting a decline in U.S. stock prices, uncertainties over the trade friction between the United States and China, and the yen's appreciation, and fell to the range of 19,000-19,500 yen in late December. It then rose along with a rise in U.S. stock prices, albeit with fluctuations, and was in the range of 21,000-22,000 yen at end-March.

    In the foreign exchange market, the yen was more or less flat against the U.S. dollar, at the 113 yen level through mid-December. It thereafter appreciated amid a decline in U.S. interest rates, and was in the range of 110-111 yen at end-March. The yen appreciated against the euro, mainly due to uncertainties over negotiations on the United Kingdom's exit from the European Union (EU).

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

    Firms' credit demand increased, mainly for funds for business fixed investment, as well as those related to mergers and acquisitions of firms. With regard to firms' funding, the year-on-year rate of increase in the amount outstanding of lending by domestic commercial banks was in the range of 2.0-2.5 percent. The year-on-year rates of increase in the amounts outstanding of CP and corporate bonds accelerated, being at relatively high levels.

  3. The monetary base (currency in circulation plus current account balances at the Bank) continued to increase at a year-on-year growth rate of around 4-6 percent. The year-on-year rate of increase in the money stock (M2) was in the range of 2-3 percent.

Monetary Policy Meetings (MPMs)

  1. Four MPMs were held in the second half of fiscal 2018.

    At the MPMs held in October through January, the Policy Board judged that Japan's economy was expanding moderately, with a virtuous cycle from income to spending operating, and at the MPM held in March, it judged that the economy was expanding moderately, with a virtuous cycle from income to spending operating, although exports and production were affected by the slowdown in overseas economies.

  2. In the conduct of monetary policy, at all the MPMs held in the second half of fiscal 2018, the Policy Board decided to continue with the following guidelines for market operations and asset purchases under "QQE with Yield Curve Control."

    (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. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.

    (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. With a view to lowering risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amount of purchases depending on market conditions.
    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 2018: "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. As for policy rates, the Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019. It will examine the risks considered most relevant to the conduct of monetary policy and 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 557.0 trillion yen, an increase of 5.4 percent from the previous year.