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Semiannual Report on Currency and Monetary Control (Summary)
Second Half of Fiscal 2025 (October 2025-March 2026)

-- The semiannual report was submitted to the Diet in June 2026.

Bank of Japan

Economic Developments

  1. During the period from October 2025 through March 2026, Japan's economy had recovered moderately, although some weakness had been seen in part.

    Exports and industrial production had continued to be more or less flat as a trend, while they had been affected by the increase in U.S. tariffs. Corporate profits had remained at high levels on the whole, although downward effects due to tariffs had been seen in manufacturing. Business sentiment had been at a favorable level, while it had been affected by the situation in the Middle East at the end of the October-March period. Under these circumstances, business fixed investment had followed a moderate increasing trend. Private consumption had been resilient against the background of an improvement in the employment and income situation, although it had been affected by price rises. On the other hand, housing investment had followed a declining trend. Public investment had continued to be more or less flat. Meanwhile, labor market conditions had remained tight.

  2. Regarding price developments, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) had been in the range of around 2.5-3.0 percent, with moves to pass on wage increases to selling prices continuing and due to the effects of the rise in food prices, such as rice prices, and other factors; the rate of increase then declined to a level below 2 percent in the second half of the October-March period due to factors such as the effects of the government's measures to reduce the household burden of higher energy prices. Inflation expectations had continued to rise moderately.

Developments in Financial Markets and Conditions

  1. In global financial markets, market sentiment had remained at an improved level through February, reflecting reduced uncertainties over the outlook for the global economy. Thereafter, however, market sentiment had become significantly cautious, reflecting increased tension over the situation in the Middle East.

  2. In the money market, the uncollateralized overnight call rate had been at around 0.5 percent up until the December 2025 Monetary Policy Meeting (MPM). Following the change in the guideline for money market operations at the December MPM, the rate had been at around 0.75 percent.

    With regard to developments in the bond market, 10-year Japanese government bond (JGB) yields had risen significantly through mid-January, reflecting factors such as market views on future developments in Japan's economic activity and prices. Since then, while yields had declined through late February as investors bought back JGBs, they rose again in March with attention being drawn to heightened inflationary pressure reflecting the rise in crude oil prices amid increased tension over the situation in the Middle East.

    The Nikkei 225 Stock Average had increased significantly over the October-March period; it had increased significantly through February on the back of solid business performance and expectations for the government's economic measures; after the start of March, it had declined due to the rise in investors' risk aversion in the wake of increased tension over the situation in the Middle East. It was in the range of 51,000-52,000 yen at the end of March.

    In the foreign exchange market, the yen had depreciated against the U.S. dollar, and was in the range of 159-160 at the end of March. The yen had also depreciated against the euro.

  3. With regard to corporate financing, firms' funding costs had increased. Demand for funds had increased 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 been in the range of around 4.5-5.5 percent. The year-on-year rate of increase in the aggregate amount outstanding of CP and corporate bonds had been in the range of around 7.0-7.5 percent, pushed up in part by past large-scale issuances.

  4. The year-on-year rate of decline in the monetary base (currency in circulation plus current account balances at the Bank) had accelerated, with a decline in the purchase amount of JGBs and in loan disbursements under the Fund-Provisioning Measure to Stimulate Bank Lending. The year-on-year rate of change in the money stock (M2) had been in the range of around 1.5-2.0 percent.

MPMs

  1. Four MPMs were held in the second half of fiscal 2025.

    The Policy Board made the following judgment on economic and financial developments at all the MPMs held during the period: "Japan's economy has recovered moderately, although some weakness has been seen in part."

  2. In the conduct of monetary policy, the Policy Board decided at the October MPM to maintain the following guideline for money market operations.

    The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5 percent.

    At the December MPM, the Policy Board judged it appropriate to adjust the degree of monetary accommodation and decided to set the following guideline for money market operations for the intermeeting period.

    The Bank will encourage the uncollateralized overnight call rate to remain at around 0.75 percent.

    In addition, in accordance with the above change in the guideline for money market operations, the Policy Board decided to change the interest rates applied to the Bank's measures.

    1. (1) Interest rate applied to the complementary deposit facility

    The interest rate applied to the complementary deposit facility (the interest rate applied to current account balances held by financial institutions at the Bank, excluding required reserve balances) will be 0.75 percent.

    1. (2) Basic loan rate

    The basic loan rate applicable under the complementary lending facility will be 1.0 percent.

    At the January and March MPMs, the Policy Board decided to maintain the above guideline for money market operations.

    With regard to the future conduct of monetary policy, the Policy Board confirmed the following at the October MPM: "Given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation. In this regard, considering that high uncertainties still remain regarding the impact of trade and other policies in each jurisdiction, it is important for the Bank to carefully examine factors such as developments in economic activity and prices as well as in financial markets at home and abroad, and judge whether the outlook will be realized, without any preconceptions. With the price stability target of 2 percent, the Bank will conduct monetary policy as appropriate, 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." At the December MPM, the Policy Board confirmed the following: "Given that real interest rates are at significantly low levels, if the outlook for economic activity and prices presented in the October Outlook for Economic Activity and Prices (Outlook Report) will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation. With the price stability target of 2 percent, it will conduct monetary policy as appropriate, 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." At the January MPM, the Policy Board confirmed the following: "Given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation. With the price stability target of 2 percent, it will conduct monetary policy as appropriate, 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." At the March MPM, the Policy Board confirmed the following: "Given that real interest rates are at significantly low levels, if the outlook for economic activity and prices presented in the January Outlook Report will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation. With the price stability target of 2 percent, it will conduct monetary policy as appropriate, 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."

The Bank's Balance Sheet

  1. As of end-March, the Bank's total assets amounted to 663.0 trillion yen, a decrease of 9.1 percent from the previous year.