Publication of "Monetary Base and the Bank of Japan's Transactions"
June 8, 2000
Bank of Japan
Policy Planning Office
The Bank of Japan has been making continuing efforts to increase disclosure of information about monetary policy. As part of these efforts, the Bank hereby announces that it today starts publishing "Monetary Base and the Bank of Japan's Transactions" on a monthly basis. The statistics in this publication explain the relation between the monetary base, which is regarded as "currency supplied by the Bank of Japan," and various transactions conducted by the Bank.
What follows mainly describes the basic idea and framework of the statistics. For more detailed information, please refer to the article "Monetary Base and the Bank of Japan's Transactions," also released today (available only in Japanese).
I. Basic Idea of "Monetary Base and the Bank of Japan's Transactions"
There are many ways to define the funds supplied by the central bank and no definition is dominant. However, the Bank of Japan regards the monetary base as "currency supplied by the Bank of Japan." The monetary base figure, published by the Bank, is defined as "the total of banknotes and coins in circulation, and current account balances at the Bank of Japan." Of these components, banknotes in circulation and the current account balances are included in the liabilities of the Bank's balance sheet.
The balance sheet of the Bank of Japan reflects various transactions conducted by the Bank such as market operations, extension of loans, transactions with the Government and foreign central banks.
Therefore, by reconstructing the balance sheet of the Bank, a table can be obtained showing the relation between the monetary base and the Bank's transactions.1
- 1It is difficult to identify the Bank of Japan's transactions solely by observing the balance sheet of the Bank or the "Supply and Demand of Funds and Market Operations" (the name of the statistics will be changed in July as separately announced today; the statistics comprise daily and monthly tables, and hereafter they are called the funds-tables).
For example, it is sometimes misunderstood that the expansion/shrinkage of the Bank's balance sheet corresponds to easing/tightening of monetary policy. Also, the funds-tables show that the Bank frequently uses funds-absorption operations on a day (or in a month) of funds surplus, which is caused by the treasury funds factor. These funds-absorption operations are sometimes misinterpreted as monetary tightening. In order to avoid such misunderstandings, it is useful to break down items of the balance sheet clearly by the type of transaction and to show the relationship between the monetary base and each type of transaction.
II. The Framework of "Monetary Base and the Bank of Japan's Transactions"
As described above, "Monetary Base and the Bank of Japan's Transactions" explains the movement of the monetary base, which consists mainly of banknotes and current account balances, in terms of changes in the Bank's other assets and liabilities. It can be created by reconstructing the balance sheet of the Bank.
Specifically, the statistics can be compiled by the following steps. First, compute the monetary base by extracting "banknotes in circulation" and "current deposits at the Bank of Japan" from the Bank's balance sheet, and adding coins in circulation.2 Second, reconstruct assets, liabilities other than banknotes and current deposits at the Bank, capital accounts, and coins in circulation so that the total matches with the monetary base derived in the first step. Third, break down each item of the balance sheet and reorganize by the type of transaction conducted by the Bank (please refer to the Appendix).
As "Monetary Base and the Bank of Japan's transactions" is created by reorganizing the balance sheet, the statistics are based on stock figures ("stock table"). For convenience, figures indicating the increases/decreases in stock figures ("flow table") are also calculated and provided.
- 2The "monetary base" statistics published by the Bank of Japan are based on average amounts outstanding, while the monetary base figures used in "Monetary Base and the Bank of Japan's Transactions" are based on end-of-period amounts outstanding. Thus the two statistics are different.
III. The Features of "Monetary Base and the Bank of Japan's Transactions"
"Monetary Base and the Bank of Japan's Transactions" has the following features compared to the balance sheet of the Bank and the funds-tables.
A. Comparison with the balance sheet
The balance sheet of the Bank of Japan records the state of assets, liabilities, and capital accounts according to the accounting rules. However, it is difficult to obtain from it an overall picture of the various transactions conducted by the Bank.
In "Monetary Base and the Bank of Japan's Transactions," for example, the relationship between JGB transactions and the monetary base is clearly shown by indicating the types of JGB transactions through which the Bank has obtained JGBs.
B. Comparison with the funds-tables
The funds-tables are compiled in order to show exactly how current account balances are determined by issuance/redemption of banknotes ("banknotes"), receipts/payments of treasury funds and other transactions ("treasury funds and others"), and the Bank's market operations. However, the funds-tables focus on movements of the current account balances as their main aim is to make daily market operations easy to understand.
"Monetary Base and the Bank of Japan's Transactions" is constructed in such a way that, for example, it shows clearly how the issuance of banknotes or receipts/payments of treasury funds correspond to increase/decrease in the monetary base.
IV. Method of Publication
Each month's "Monetary Base and the Bank of Japan's Transactions" will be published at 8:50 a.m. on the sixth business day of the following month as hard copies and on the Bank's Web site. It will also be published in the Financial and Economic Statistics Monthly, as soon as this is ready.
For further information, contact
Planning Division I, Policy Planning Office
Mr. Shimizu (+81-3-3277-2812) or Mr. Watanabe (+81-3-3277-1553)