Semiannual Report on Currency and Monetary Control (Summary)
First Half of Fiscal 2015 (April-September 2015)
The semiannual report was submitted to the Diet in December 2015.
Bank of Japan
Economic Developments
1. Looking back at the first half of fiscal 2015, Japan's economic activity continued to recover moderately, mainly on the domestic demand side, with a virtuous cycle from income to spending at work against the background of a marked improvement in corporate profits. However, since the slowdown in emerging economies exerted downward pressure on exports and production, the pace of improvement in Japan's economy was modest.
Exports and industrial production were more or less flat, due mainly to the effects of the slowdown in emerging economies. Turning to domestic demand, public investment was at a high level. Business fixed investment followed a moderate increasing trend as corporate profits continued to improve markedly. Despite the effects of bad weather, private consumption was resilient against the background of steady improvement in the employment and income situation. Housing investment continued to pick up.
2. On the price front, excluding the direct effects of the consumption tax hike, the producer price index (PPI) relative to three months earlier declined, reflecting the developments in international commodity prices. The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) was about 0 percent. Inflation expectations appeared to be rising on the whole from a somewhat longer-term perspective.
Financial Developments
3. Money market rates, including longer-term ones, remained stable at low levels.
Long-term interest rates remained at low levels, as the Bank of Japan progressed with its Japanese government bond (JGB) purchases under quantitative and qualitative monetary easing (QQE). More concretely, long-term interest rates had increased from end-April, reflecting rises in U.S. and European long-term interest rates, but declined from early July against the backdrop of declines in U.S. and European long-term interest rates and the decline in Japanese stock prices; the rates were in the range of 0.30-0.35 percent at end-September.
The Nikkei 225 Stock Average had risen to the range of 20,500-21,000 yen on the back of the depreciation of the yen against the U.S. dollar and anticipation of improvement in corporate profits, but fell substantially from mid- to end-August, with a drop in stock prices globally prompted mainly by investors' heightening risk aversion. Thereafter, it continued to fluctuate and was in the range of 17,000-17,500 yen at end-September.
In the foreign exchange market, the yen had depreciated against the U.S. dollar due to market participants' awareness of, for example, the difference in the direction of monetary policy between Japan and the United States, but reverted to an appreciation from mid-August, mainly in response to speculation about U.S. monetary policy, and was about 120 yen against the U.S. dollar at end-September. The yen depreciated against the euro, reflecting in part the rebound in interest rates in Europe, and it traded at around 134 yen against the euro at end-September.
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. Issuing conditions for CP and corporate bonds remained favorable.
Firms' credit demand increased moderately, 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 was in a positive range of about 2.5-3.0 percent. In contrast, the year-on-year rate of change in the amount outstanding of corporate bonds was either negative or otherwise, the amount outstanding was more or less around the year-ago level. Meanwhile, the year-on-year rate of change in that of CP turned negative after having been positive.
5. The monetary base (currency in circulation plus current account balances at the Bank) increased significantly as asset purchases by the Bank progressed, and the year-on-year rate of growth was in the range of around 30-35 percent. The year-on-year rate of growth in the money stock (M2) was in the range of around 3.5-4.5 percent.
Monetary Policy Meetings (MPMs)
6. Seven MPMs were held in the first half of fiscal 2015.
At the MPM held in April, the Policy Board judged that Japan's economy continued its moderate recovery trend, and at the MPMs held in May through August, it judged that the economy continued to recover moderately. At the September MPM, the Policy Board deemed that the economy continued to recover moderately, although exports and production were affected by the slowdown in emerging economies.
7. In its conduct of monetary policy, the Policy Board decided at all the MPMs held in the first half of fiscal 2015 to continue with the following guidelines with regard to money market operations and asset purchases that were determined at the MPM on October 31, 2014.
Guideline for Money Market Operations
The Bank will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.
Guidelines for Asset Purchases
- a) The Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the Bank's JGB purchases will be about 7-10 years.
- b) 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 3 trillion yen and about 90 billion yen, respectively.
- c) 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 2015: "the Bank will continue with QQE, 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 examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate."
The Bank's Balance Sheet
8. As of end-September, the Bank's total assets amounted to 366.1 trillion yen, an increase of 32.1 percent from the previous year.