Semiannual Report on Currency and Monetary Control (Summary)
Second Half of Fiscal 2023 (October 2023-March 2024)
-- The semiannual report was submitted to the Diet in June 2024.
Bank of Japan
Economic Developments
During the period from October 2023 through March 2024, Japan's economy had recovered moderately. However, some weakness had been seen in part in the second half of the period.
Although exports had been affected by a slowdown in the pace of recovery in overseas economies, they had been more or less flat. Industrial production had been more or less flat as a trend, but it had declined in the second half of the October-March period, partly due to the effects of a suspension of production and shipment at some automakers. Corporate profits and business sentiment had improved. In this situation, business fixed investment had followed a moderate increasing trend. The employment and income situation had improved moderately. Private consumption had been resilient, although the impact of price rises and, in the second half of the October-March period, developments such as a decline in automobile sales due to the suspension of shipment at some automakers had been observed. Housing investment had been relatively weak. Public investment had been more or less flat.
- Regarding price developments, the contribution of energy prices to the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) had been negative, partly due to the government's economic measures. That said, the rate of increase in the CPI had been in the range of 2-3 percent, mainly on the back of the fact that, despite waning, the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices had remained, and services prices had increased moderately. Inflation expectations had continued to rise moderately.
Financial Developments
Money market rates had been at low levels on the whole. The uncollateralized overnight call rate had been in the range of minus 0.1 to 0 percent under the framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control. Following the changes in the monetary policy framework decided at the March 2024 Monetary Policy Meeting (MPM), it had been in the range of 0 to 0.1 percent.
With regard to developments in the bond market, 10-year Japanese government bond (JGB) yields had been more or less flat on the whole during the October-March period.
The Nikkei 225 Stock Average had exceeded the record high and reached the range of 40,000-41,000 yen at the end of March, with market attention on, for example, solid corporate results and the yen's depreciation, and in line with increases in U.S. and European stock prices.
In the foreign exchange market, the yen had depreciated against the U.S. dollar on the whole during the October-March period. The U.S. dollar was in the range of 151-152 yen at the end of March. The yen had also depreciated against the euro, albeit with fluctuations.
- With regard to corporate financing, firms' funding costs had increased toward the end of the October-March period but had remained at low levels. Demand for funds had continued to increase moderately on the back of, for example, a recovery in economic activity as well as mergers and acquisitions of firms. In terms of supply of funds, financial institutions' lending attitudes as perceived by firms had remained accommodative. In this situation, the year-on-year rate of increase in the amount outstanding of private bank lending had accelerated to around 3.5 percent. The rate of increase in the aggregate amount outstanding of CP and corporate bonds had been in the range of around 1.5-2.5 percent.
The year-on-year rate of increase in the monetary base (currency in circulation plus current account balances at the Bank) had decelerated, with a decline in the purchase amount of JGBs compared with a while ago. The rate for the money stock (M2) had been in the range of 2.0-2.5 percent.
MPMs
Four MPMs were held in the second half of fiscal 2023.
Regarding economic and financial developments, at the MPMs held in October through January, the Policy Board judged that "Japan's economy has recovered moderately." Thereafter, at the March MPM, it deemed that "Japan's economy has recovered moderately, although some weakness has been seen in part."
- In the conduct of monetary policy, the Policy Board decided at the October MPM to further increase the flexibility in the conduct of yield curve control and to set the following guidelines for market operations and conduct of yield curve control under QQE with Yield Curve Control. Regarding asset purchases, the Policy Board maintained the following guidelines.
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 yield curve control
The Bank will regard the upper bound of 1.0 percent for 10-year JGB yields as a reference in its market operations, and in order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, it will continue with large-scale JGB purchases and make nimble responses for each maturity by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations and the Funds-Supplying Operations against Pooled Collateral.
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 maintain the amount outstanding of CP at about 2 trillion yen. It will purchase corporate bonds at about the same pace as prior to the COVID-19 pandemic, so that their amount outstanding will gradually return to the pre-pandemic level of about 3 trillion yen. In adjusting the amount outstanding of corporate bonds, the Bank will give due consideration to their issuance conditions.
At the December and January MPMs, the Policy Board maintained the above guidelines for market operations, conduct of yield curve control, and asset purchases.
At the March MPM, the Policy Board decided to change the monetary policy framework and made the following decisions, including that on the guideline for market operations.
Guideline for market operations
The Bank decided to set the following guideline for market operations for the intermeeting period.
The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent.
Purchase of JGBs
The Bank will continue its JGB purchases at broadly the same amount as before. In the case of a rapid rise in long-term interest rates, it will make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations of JGBs -- both of which can be done regardless of the monthly schedule of JGB purchases -- and the Funds-Supplying Operations against Pooled Collateral.
Asset purchases other than JGB purchases
- (1) The Bank will discontinue purchases of ETFs and J-REITs.
- (2) The Bank will gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
Treatment of new loan disbursements under the Fund-Provisioning Measure to Stimulate Bank Lending etc.
The Bank will provide loans under the Fund-Provisioning Measure to Stimulate Bank Lending, the Funds-Supplying Operation to Support Financial Institutions in Disaster Areas, and the Funds-Supplying Operations to Support Financing for Climate Change Responses with an interest rate of 0.1 percent and a duration of one year. With regard to the Fund-Provisioning Measure to Stimulate Bank Lending, the maximum amount of funds that each eligible counterparty can borrow will be equivalent to the net increase in its amount outstanding of loans.
With regard to the future conduct of monetary policy, the Policy Board confirmed the following at the MPMs held in October through January: "With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions. By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target, 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 maintain the stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary." At the March MPM, the Policy Board confirmed the following: "With the price stability target of 2 percent, the Bank will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool, in response to developments in economic activity and prices as well as financial conditions from the perspective of sustainable and stable achievement of the target. Given the current outlook for economic activity and prices, the Bank anticipates that accommodative financial conditions will be maintained for the time being."
The Bank's Balance Sheet
- As of end-March, the Bank's total assets amounted to 756.4 trillion yen, an increase of 2.9 percent from the previous year.