Periodical Revision of "L" - Broadly-defined Liquidity
June 9, 2017
Research and Statistics Department
Bank of Japan
The Bank of Japan has conducted a periodical revision of "L" - broadly-defined liquidity in the Money Stock Statistics (MSS).
The Bank revises the data for each component of "L" considering financial and economic structural changes according to the following standards:
- When the Bank finds much room for improvement on the accuracy of the data.
- The Bank reviews each component periodically in principle (every three years) and revises if necessary.
As a result of the revision, figures from April 2003 through April 2017 are retroactively revised. Specifically, y/y % changes of M3 have been revised in the range of minus 0.2- 0.0 % pt., while y/y % changes of "L" have been revised in the range of minus 0.3 - +0.2% pt. Among the components of "L", the revisions of "Deposit money", "Government securities" and "Investment trusts" have been relatively large. For details, refer to the following materials.
Highlights of the revision are as follows1.
- For details, refer to revised "Guide to Japan's Money Stock Statistics", which is forthcoming.
1. Currency and deposits held by securities companies
In the MSS, securities companies are defined as non-money holders, and thus financial instruments held by them are to be excluded. However, in a primary data source of MSS, "Deposits, Vault Cash, and Loans and Bills Discounted", financial instruments held by securities companies are reported as those held by non-financial corporations which are defined as money holders in the MSS. Thus, the amount of financial instruments held by securities companies is estimated to be deducted from the figures of the MSS.
The revised estimation method for the amount of currency and deposits held by securities companies uses "BOJ Current Account Balances by Sector", improving the accuracy of estimation.
As a result, the figures of "M1", "M2", "M3", "Currency in circulation", "Deposit money", and "Quasi-money" are revised from November 2012.
2. Government securities
"Government securities" in "L" is the sum of "Central government securities and FILP bonds" (narrowly-defined government securities) and "Treasury discount bills" in the "Flow of Funds Accounts". The estimation method for the amount of narrowly-defined government securities held by a certain money holders has been revised as follows.
Previously, the amount of government securities held by local governments sector and private nonfinancial corporations sector was estimated based on data sources including "Survey of the Holders of Clearing Government Bonds". However, the respondents of the data source do not necessarily match these sectors, leaving a room for improvement in the estimation method. The revised method uses new data sources, "Annual Statistics on Local Public Finance" by Ministry of Internal Affairs and Communications for local governments and "Financial Statements Statistics of Corporations by Industry" by Ministry of Finance for private nonfinancial corporations. The amount of government securities is estimated as a portion of public and corporate bonds2.
In addition, the estimation method for the amount of government securities held by private nonprofit institutions serving households has been revised. Previously, under the assumption that they held a certain percentage of the total of government securities issued, a change in trend such as financial institutions' asset allocation strategies affected the amount of government securities. The revised method assumes that the amount of government securities follows the trend of the amount held by nonfinancial corporations whose asset allocation appears to be similar.
The figures of "Government securities" have been revised from April 2003, the starting data period of the MSS.
- 2The ratio of the amount of government securities to that of public and corporate bonds is estimated separately for each sector under the following assumptions: all local governments have the same ratio as a certain local governments whose data are available; and private nonfinancial corporations have the same ratio as the total amount of government securities issued to that of public and corporate bonds issued.
3. Investment trusts
The amount of investment trusts held by money holders is compiled by deducting "the portion held by non-money holders (financial institutions and nonresidents)" from "the total of investment trusts issued". The total of investment trusts issued is compiled by using data from "Assets and Liabilities of Domestically Licensed Banks (Trust Accounts)" and "Real Estate Investment Trusts". The portion held by non-money holders is identified from "Assets and Liabilities of Domestically Licensed Banks (Banking Accounts)" and the balance sheets of individual financial institutions.
Three revisions have been conducted. First, including private real estate investment trusts has widened the data coverage, reflecting the recent increase in the amount issued. Second, the amount of exchange traded funds and public real estate investment trusts held by nonresidents has become to be deduced as the portion held by non-money holders, which is identified from "ETF Beneficiary Survey" and "REIT Investor Survey" by Tokyo Stock Exchange. Third, making use of disaggregated source data has significantly improved the accuracy of estimation for preliminary figures.
The figures of "Investment trusts" have been revised from April 2003, the starting data period of the MSS.
4. Foreign Bonds
The previous method assumed that for preliminary figures the flows for the latest two months were zero, and then they were adjusted only to reflect the monthly changes in foreign exchange rates during these two months, since the primary data source "Balance of Payments" became available only after a time lag of about 1.5 months.
The revised method uses "International Transaction in Securities (Based on reports from designated major investors)" by Ministry of Finance as another primary data source. Since the data source becomes available about one month earlier than "Balance of Payments", the accuracy of estimates for the latest two months has improved.
Economic Statistics Division, Research and Statistics Department