Semiannual Report on Currency and Monetary Control (Summary)
First Half of Fiscal 2022 (April-September 2022)
-- The semiannual report was submitted to the Diet in December 2022.
Bank of Japan
- During the period from April through September 2022, Japan's economy, despite being affected by factors such as a rise in commodity prices, had picked up as the resumption of economic activity had progressed while public health had been protected from the novel coronavirus (COVID-19).
Exports and industrial production had increased as a trend, with the effects of supply-side constraints intensifying in the first half of the April-September period but waning thereafter. Corporate profits had been at high levels on the whole, and business sentiment had been more or less unchanged. Business fixed investment had kept picking up, although weakness had been seen in some industries. The employment and income situation had improved moderately on the whole. Private consumption had increased moderately, despite being affected by the COVID-19 resurgence this summer. Housing investment had been relatively weak. Public investment had been more or less flat.
- Regarding price developments, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) had accelerated due to rises in prices of such items as energy, food, and durable goods, registering around 3 percent at the end of the April-September period. Inflation expectations had risen.
Developments in Financial Markets and Conditions
- In global financial markets, amid concern over acceleration in the pace of policy interest rate hikes by central banks, U.S. and European long-term interest rates had risen significantly. Risk asset prices had declined substantially with long-term interest rates following an increasing trend, and with concern over a possible economic slowdown. Meanwhile, international commodity prices had declined on the whole, reflecting deterioration in the outlook for global demand, although they had continued to be at high levels against the background of the remaining effects of geopolitical risks.
- Turning to domestic financial markets, money market rates had been at low levels on the whole.
With regard to developments in the bond market, 10-year Japanese government bond (JGB) yields had been at the target level of around zero percent under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control. Issuance rates for CP had been at extremely low levels. Those for corporate bonds had been at low levels, albeit rising somewhat.
The Nikkei 225 Stock Average had declined in line with stock prices in the United States and Europe and was in the range of 25,500-26,000 yen at the end of September. However, the degree of decline had been comparatively small in Japan, reflecting market attention on such factors as the undervaluation of Japanese stock prices relative to those in the United States and the yen's depreciation.
In the foreign exchange market, the yen had depreciated against the U.S. dollar, partly due to dollar purchasing by Japanese importers, with market attention on the differing direction of monetary policy between the two countries. The U.S. dollar was in the range of 144-145 yen at the end of September. In the meantime, foreign exchange intervention operations of buying yen and selling U.S. dollars were conducted. The yen had also depreciated against the euro, reflecting a rise in interest rates in European economies.
- With regard to corporate financing, demand for funds had risen moderately due to an increase in demand for working capital in reflection of the resumption of economic activity and raw material cost increases, while precautionary demand for liquidity due to the impact of COVID-19 had subsided on the whole. Although weakness had remained in some segments, firms' financial positions had continued on an improving trend, including for small and medium-sized firms, on the back of a pick-up in the economy. Meanwhile, in terms of supply of funds, financial institutions' lending attitudes as perceived by firms had remained accommodative.
- The year-on-year rate of change in the monetary base (currency in circulation plus current account balances at the Bank) had decelerated gradually, mainly due to a decline in the amount outstanding of funds provided through the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19). The rate turned negative in September. The year-on-year rate of change in the money stock (M2) had been in the range of 3.0-3.5 percent.
Monetary Policy Meetings (MPMs)
- Four MPMs were held in the first half of fiscal 2022.
Regarding economic and financial developments, the Policy Board judged at the April and June MPMs that "Japan's economy has picked up as a trend, although some weakness has been seen in part, mainly due to the impact of COVID-19 and a rise in commodity prices." It then deemed at the July MPM that "Japan's economy has picked up with the impact of COVID-19 waning, despite being affected by factors such as a rise in commodity prices." The Policy Board judged at the September MPM that "Japan's economy has picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19, despite being affected by factors such as a rise in commodity prices."
- In the conduct of monetary policy, the Policy Board decided at the April MPM upon the following guideline for market operations under QQE with Yield Curve Control.
Yield curve control
- (1) 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 JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent.
- (2) Conduct of fixed-rate purchase operations for consecutive days
In order to implement the above guideline for market operations, the Bank will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted.
At all the subsequent MPMs, the Policy Board maintained the above guideline for market operations.
With regard to asset purchases, the Policy Board decided to maintain the following guidelines at all the MPMs held in the first half of fiscal 2022.
Guidelines for asset purchases
With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.
- (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) The Bank will purchase CP and corporate bonds at about the same pace as prior to the COVID-19 pandemic, so that their amounts outstanding will gradually return to pre-pandemic levels, namely, about 2 trillion yen for CP and about 3 trillion yen for corporate bonds.
At the September MPM, the Policy Board decided to phase out the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) and shift to fund-provisioning that would meet a wide range of financing needs.
- (1) Treatment of the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19)
- a) Regarding the fund-provisioning against loans that financial institutions make on their own ("non-government-supported loans") in response to COVID-19, mainly to small and medium-sized firms, the Bank will extend the implementation period by six months and complete the fund-provisioning at the end of March 2023. During the extended implementation period, it will provide three-month funds once a month.
- b) Regarding the fund-provisioning against loans that financial institutions make on the back of government support ("government-supported loans") in response to COVID-19, mainly to small and medium-sized firms, the Bank will extend the implementation period by three months and complete the fund-provisioning at the end of December 2022. During the extended implementation period, it will provide three-month funds once a month.
- (2) Provision of an Unlimited Amount of Funds under the Funds-Supplying Operations against Pooled Collateral
In order to support financing, mainly of small and medium-sized firms, even after the expiration of the above special operations, and with a view to meeting a wider range of financing needs, the Bank will set no upper limit on the amount of fund-provisioning under the Funds-Supplying Operations against Pooled Collateral, for which various types of collateral are accepted. This change will be applied from the next fund-provisioning scheduled on September 27.
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 2022: "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. For the time being, while closely monitoring the impact of COVID-19, the Bank will support financing, mainly of firms, and maintain stability in financial markets, and will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels."
The Bank's Balance Sheet
- As of end-September, the Bank's total assets amounted to 685.8 trillion yen, a decrease of 5.3 percent from the previous year.