Semiannual Report on Currency and Monetary Control (Summary)
Second Half of Fiscal 2012 (October 2012-March 2013)
The semiannual report was submitted to the Diet in June 2013.
Bank of Japan
Economic Developments
1. Looking back at the second half of fiscal 2012, Japan's economic activity had been relatively weak toward the end of 2012, mainly because overseas economies remained in a deceleration phase. After the turn of the year, however, it had stopped weakening and shown some signs of a pick-up against the background that domestic demand remained resilient on the whole mainly due to improvement in household and business sentiment and that overseas economies had gradually headed toward a pick-up.
Exports continued to decrease toward the end of 2012 mainly due to the deceleration in overseas economies, but had stopped decreasing thereafter as these economies gradually headed toward a pick-up. As for domestic demand, public investment increased, especially that related to reconstruction following the earthquake disaster, and housing investment continued to generally pick up. Private consumption remained resilient on the whole. After the turn of the year, it gradually saw increased resilience, mainly because the effects of the decline in car sales due to the ending of some measures to stimulate demand for automobiles had fallen off and boosting effects of an improvement in consumer sentiment were observed. Meanwhile, business fixed investment continued to show some weakness on the whole due to the decrease in the manufacturing sector, but began to stop decreasing toward the end of fiscal 2012 as it had been resilient in the nonmanufacturing sector. Reflecting these developments in demand both at home and abroad, industrial production also continued to decrease toward the end of 2012, but had stopped decreasing thereafter and headed toward a pick-up.
2. The year-on-year rate of decline in the domestic corporate goods price index (CGPI) had been on a narrowing trend, reflecting the pick-up in international commodity prices since autumn 2012 and the depreciation of the yen since the end of 2012. The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) stayed at around 0 percent, but turned negative toward the end of fiscal 2012 due to the reversal of the previous year's movements in energy-related and durable consumer goods.
Financial Developments
3. In the money market, short-term interest rates remained stable at low levels against the backdrop of the Bank of Japan's continued provision of ample funds.
Long-term interest rates, until mid-February, had generally been more or less unchanged, moving within a narrow range centering around 0.7-0.8 percent, albeit with fluctuations following developments in U.S. long-term interest rates. Since late February, they had declined to their lowest levels since fiscal 2003, partly due to increased demand from investors mainly caused by speculation about monetary policy, and were in the range of 0.5-0.6 percent at the end of March.
The Nikkei 225 Stock Average had generally been more or less unchanged toward mid-November. It had been rising thereafter mainly in response to the rise in U.S. and European stock prices and the depreciation of the yen, and was in the range of 12,000-12,500 yen at the end of March.
In the foreign exchange market, the yen depreciated against the U.S. dollar partly due to speculation about policies and developments in Japan's trade balance deficit, as investor sentiment improved mainly against the background that tail risks regarding developments in Europe had decreased. At the end of March, the yen traded at the 94-95 yen level against the U.S. dollar. The euro appreciated against the yen toward early February, temporarily reaching the 127-128 yen level. The euro subsequently depreciated as uncertainty about the European developments had drawn attention again, and at the end of March, the yen traded at the 120-121 yen level against the euro.
4. As for corporate finance, in terms of credit supply, financial institutions' lending attitudes as perceived by firms continued to be on an improving trend. In the CP and corporate bond markets, issuing conditions generally continued to be favorable.
In terms of credit demand, firms showed signs of increasing their demand mainly for working capital and funds related to mergers and acquisitions. With regard to firms' funding, the year-on-year rate of increase in the amount outstanding of lending by domestic commercial banks rose somewhat. The amount outstanding of CP and corporate bonds had been more or less around the year-ago level.
5. The monetary base (currency in circulation plus current account balances at the Bank) had generally been increasing at a pace of more than 10 percent on a year-on-year basis. The year-on-year rate of growth in the money stock (M2) rose somewhat and was at around 3.0 percent at the end of fiscal 2012.
Monetary Policy Meetings (MPMs)
6. Seven MPMs were held in the second half of fiscal 2012.
At the MPM held on October 4 and 5, 2012, the Policy Board judged that Japan's economic activity was leveling off more or less. At the MPMs held on October 30 and in November, the Policy Board judged that the economy had been weakening somewhat. At the December MPM, the Policy Board judged that the economy had added somewhat weak movement. At the MPM held in January 2013, the Policy Board judged that the economy remained relatively weak. At the February MPM, the Policy Board judged that the economy appeared to stop weakening. At the March MPM, the Policy Board judged that the economy had stopped weakening.
7. In its conduct of monetary policy, the Policy Board decided at all the MPMs in October 2012 through March 2013 to maintain the following guideline for money market operations: "The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent."
At the MPM on October 30, the Policy Board, with a view to further pursuing aggressive monetary easing, decided to (1) increase the total size of the Asset Purchase Program by about 11 trillion yen, from about 80 trillion yen to about 91 trillion yen; and (2) establish the framework for the fund-provisioning measure to stimulate bank lending (the Stimulating Bank Lending Facility) to provide long-term funds -- up to the amount equivalent to the net increase in lending -- at a low interest rate to financial institutions at their request. Furthermore, in order to state clearly the shared understanding concerning the roles of the Government and the Bank aimed at overcoming deflation, the Policy Board decided to release "Measures Aimed at Overcoming Deflation" along with the Government.
At the December MPM, the Policy Board decided the following with a view to further pursuing aggressive monetary easing: (1) an increase in the total size of the Asset Purchase Program by about 10 trillion yen, from about 91 trillion yen to about 101 trillion yen; and (2) the operational details of the Stimulating Bank Lending Facility. Furthermore, it decided an extension of the Bank's temporary bilateral liquidity swap arrangements with the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank by one year through February 1, 2014.
At the January MPM, the Policy Board took additional steps to provide monetary accommodation decisively. Specifically, it decided to (1) introduce the "price stability target" of 2 percent in terms of the year-on-year rate of change in the CPI and aim to achieve this target at the earliest possible time, and (2) introduce the "open-ended asset purchasing method" (i.e., to purchase assets without setting any termination date) under the Asset Purchase Program, from January 2014. Furthermore, it decided to release the statement titled "Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth" with the Government.
The Bank's Balance Sheet
8. As of the end of March 2013, the Bank's total assets amounted to 164.8 trillion yen, an increase of 18.2 percent from the previous year.