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Semiannual Report on Currency and Monetary Control (Summary)
First Half of Fiscal 2021 (April-September 2021) -- The semiannual report was submitted to the Diet in December 2021.

Bank of Japan

Economic Developments

  1. During the period from April through September 2021, Japan's economy continued to pick up as a trend, although it remained in a severe situation due to the impact of the novel coronavirus (COVID-19) at home and abroad.

    Exports and industrial production continued to increase as a trend, despite being weak in the second half of the April-September period due to the effects of supply-side constraints seen in some areas. Corporate profits and business sentiment continued to improve on the whole. Business fixed investment kept picking up, although weakness had been seen in some industries. The employment and income situation remained weak due to the impact of COVID-19. Private consumption remained stagnant due to continuing strong downward pressure on consumption of services, such as eating and drinking as well as accommodations. Housing investment had turned to a pick-up. Meanwhile, public investment had been more or less flat.

  2. Regarding price developments, the year-on-year rate of decline in the consumer price index (CPI, all items less fresh food), amid the impact of COVID-19, accelerated somewhat significantly for April due to the effects of a reduction in mobile phone charges, and then continued to decelerate, mainly reflecting a rise in energy prices. At the end of the April-September period, the year-on-year rate of change in the CPI was at around 0 percent. Inflation expectations were more or less unchanged and thereafter turned to a pick-up.

Developments in Financial Markets and Conditions

  1. In global financial markets, prices of risky assets generally had followed an uptrend in advanced economies due to progress with the resumption of economic activity. On the other hand, stock prices in emerging economies had declined since summer, mainly reflecting the strengthening of various controls in China and concern over debt repayment by a major Chinese real estate firm. U.S. and European long-term interest rates had followed a declining trend through the first half of the April-September period but thereafter turned to an increase.

  2. Turning to domestic financial markets, money market rates had been at low levels on the whole.

    With regard to developments in the bond market, the long-term interest rate had been stable at the target level of around zero percent under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control. Issuance rates for CP and corporate bonds had been at extremely low levels.

    The Nikkei 225 Stock Average had been sluggish until late August. Thereafter, while the number of confirmed new cases of COVID-19 turned to a decline, it rose, mainly reflecting the correction of Japanese stock prices, which had been undervalued relative to those in the United States and Europe. The Nikkei Stock Average was at around 29,500 yen at the end of September.

    In the foreign exchange market, the yen had been more or less flat against the U.S. dollar, and was at the 111 yen level at the end of September. The yen had been more or less flat against the euro on the whole during the April-September period.

  3. With regard to corporate financing, demand for funds that stemmed mainly from a rise in precautionary demand due to the impact of COVID-19 had subsided on the whole, as evidenced by large firms repaying loans by compressing their increased funds on hand. In this situation, although firms' financial positions had improved on the whole, mainly on the back of a pick-up in economic activity, weakness remained, particularly for firms in industries facing subdued sales due to the impact of COVID-19, as well as small and medium-sized ones. Meanwhile, in terms of supply of funds, financial institutions' lending attitudes as perceived by firms remained accommodative.

  4. The year-on-year rates of increase in both the monetary base (currency in circulation plus current account balances at the Bank) and money stock (M2) had decelerated relative to somewhat high growth last year; in September, the rate of increase in the monetary base was in the range of 10-15 percent and that in monetary stock was in the range of 4.0-4.5 percent.

Monetary Policy Meetings (MPMs)

  1. Four MPMs were held in the first half of fiscal 2021.

    The Policy Board made the following judgement on economic and financial developments at all the MPMs held during the period: "Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad."

  2. In the conduct of monetary policy, the Policy Board decided at all the MPMs held in the first half of fiscal 2021 to maintain the following guideline for market operations under QQE with Yield Curve Control.

    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 a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

    With regard to asset purchases, the Policy Board decided at the April MPM to maintain the following guidelines.

    Guidelines for asset purchases

    With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

    1. (1) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding.
    2. (2) The Bank will purchase CP and corporate bonds with an upper limit on the amount outstanding of about 20 trillion yen in total until the end of September 2021.

    At the June MPM, the Policy Board extended the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19), as described later. It also decided upon the following guidelines for asset purchases.

    Guidelines for asset purchases

    With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

    1. (1) The Bank will purchase ETFs and J-REITs as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding.
    2. (2) The Bank will purchase CP and corporate bonds with an upper limit on the amount outstanding of about 20 trillion yen in total until the end of March 2022.

    At all the subsequent MPMs, the Policy Board maintained the above guidelines for asset purchases.

    At the June MPM, the Policy Board decided to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) by 6 months until the end of March 2022 with a view to continuing to support financing, mainly of firms, given that such financing was likely to remain under stress due to the impact of COVID-19, although it had improved compared with a while ago.

    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 2021: "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 continue to support financing mainly of firms and maintain stability in financial markets through (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19), (2) an ample provision of yen and foreign currency funds without setting upper limits mainly by purchasing JGBs and conducting the U.S. dollar funds-supplying operations, and (3) purchases of ETFs and J-REITs with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding. For the time being, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels."

    Regarding actions to address climate change, the Policy Board made the following statement at the June MPM.

    Climate change issues could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective. The Bank considers that supporting the private sector's efforts on the issues from a central bank's standpoint will contribute to stabilizing the macroeconomy in the long run. In taking actions from the monetary policy side, the Bank deems it important to give consideration to market neutrality. Against this background, in order to support private financial institutions' various efforts in the field related to climate change, the Bank judged it appropriate to introduce a new fund-provisioning measure, through which it provides funds to financial institutions for investment or loans that they make to address climate change issues based on their own decisions. This new measure will be a successor to the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth. Although loan disbursement under the existing measure will continue to be made through June 2022 as scheduled, the Bank will launch the new measure likely within 2021. It will make public the preliminary outline of the measure at the next July MPM.

    At the July MPM, the Policy Board decided on the preliminary outline of the new fund-provisioning measure to support private financial institutions' various efforts in fields related to climate change, a measure which was announced at the June MPM to be introduced. At the September MPM, the Policy Board decided on the details of the Funds-Supplying Operations to Support Financing for Climate Change Responses (Climate Response Financing Operations), of which the preliminary outline was made public at the July MPM.

The Bank's Balance Sheet

  1. As of end-September, the Bank's total assets amounted to 724.1 trillion yen, an increase of 4.9 percent from the previous year.