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Background to the High Level of Banknotes in Circulation and Demand Deposits

September 2008
Monetary Affairs Department
Akira Otani and Takashi Suzuki*

  • Currently, Financial Market Department.

Click on rev08e05.pdf to download the full text.

Banknotes and demand deposits have exhibited high growth since the late 1990s, and remain at historically high levels. We examine the background to these developments by using available data such as the volume of banknotes in circulation by denomination and the volume of demand deposits by depositor age. We find the main reason for the growth in banknotes and demand deposits is an increase in "non-transaction demand" for savings and other purposes by the household sector, especially by the elderly. Moreover, as for the outlook, as long as changes in interest rates remain limited, the amounts of banknotes in circulation and demand deposits are likely to remain high because the holding behavior of the elderly will probably remain unchanged. We should note, however, that any changes in the sensitivity of the elderly to interest rates may alter their choice of financial assets.


Bank of Japan Review is published by the Bank of Japan to explain recent economic and financial topics for a wide range of readers. This report, 2008-E-5, is a translation of a translation of the original Japanese issue, 2008-J-9, published in August 2008. The views expressed in the Review are those of the authors and do not necessarily represent those of the Bank of Japan.

If you have comments, questions, or requests for hard copies, please contact Akira Otani ( Bank of Japan Working Paper E-series can be obtained through the Bank of Japan's Web site.