Semiannual Report on Currency and Monetary Control (Summary)
Second Half of Fiscal 2022 (October 2022-March 2023)

-- The semiannual report was submitted to the Diet in June 2023.

• The full report is available only in Japanese.

Bank of Japan

Economic Developments

1. During the period from October 2022 through March 2023, Japan's economy, despite being affected by factors such as high commodity prices, had picked up as the resumption of economic activity had progressed while public health had been protected from COVID-19.

   Although exports and industrial production had been affected by a slowdown in the pace of recovery in overseas economies, they had been more or less flat, supported by a waning of the effects of supply-side constraints. Corporate profits had been at high levels on the whole, and business sentiment had been more or less unchanged. In this situation, business fixed investment had increased moderately. The employment and income situation had improved moderately on the whole. Private consumption, despite being affected by price rises, had increased moderately, with the impact of COVID-19 waning. Housing investment had been relatively weak. Public investment had been more or less flat.

2. Regarding price developments, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) had accelerated to around 4 percent through January due to rises in prices of such items as energy, food, and durable goods. Thereafter, the rate of increase decelerated, mainly due to the effects of pushing down energy prices from the government's economic measures, registering around 3 percent for March. Inflation expectations had been more or less unchanged after rising.

Developments in Financial Markets and Conditions

3. Regarding global financial markets, stock prices in many economies had risen, mainly reflecting a decline in U.S. long-term interest rates, the resumption of economic activity in China, and the fact that concern over a possible economic slowdown associated with energy shortages had eased somewhat in Europe. Through mid-March, however, there had been a phase when stock prices declined, with heightened concern over issues surrounding some financial institutions in the United States and Europe leading to a rise in investors' risk aversion. Thereafter, market tensions eased somewhat through the end of March, partly because public authorities around the world had taken swift measures.
4. 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 risen, mainly against the background of an increase in their base rate and heightened volatility in financial markets at home and abroad, and then were more or less flat at the end of the October-March period.

   The Nikkei 225 Stock Average had risen more or less in line with U.S. stock prices and was in the range of 28,000-29,000 yen at the end of March.

   In the foreign exchange market, the yen had appreciated against the U.S. dollar, with market attention on such factors as a narrowing of the yield differential between Japan and the United States. The U.S. dollar was in the range of 133-134 yen at the end of March. The yen had depreciated somewhat against the euro on the whole during the October-March period, albeit with fluctuations.

5. With regard to corporate financing, demand for funds had risen moderately, mainly due to an increase in demand for working capital in reflection of a pick-up in economic activity and of raw material cost increases. Although weakness had remained in some segments, firms' financial positions had been at improved levels on the whole, supported by the pick-up in economic activity. Meanwhile, in terms of supply of funds, financial institutions' lending attitudes as perceived by firms had remained accommodative.
6. The year-on-year rate of decline in the monetary base (currency in circulation plus current account balances at the Bank) had accelerated, 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). Thereafter, the rate of decline decelerated due to an increase in JGB purchases. The year-on-year rate of change in the money stock (M2) had been at around 2.5-3.0 percent.

Monetary Policy Meetings (MPMs)

7. Four MPMs were held in the second half of fiscal 2022.

   The Policy Board made the following judgement on economic and financial developments at all the MPMs held during the period: "Japan's economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19."

8. In the conduct of monetary policy, the Policy Board decided at the October MPM to maintain the following guideline for market operations under QQE with Yield Curve Control.

   Yield curve control

   1. (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.

   1. (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 the December MPM, the Policy Board decided to modify the conduct of yield curve control in order to improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions. To this end, it decided upon the following guideline for market operations.

   Yield curve control

   1. (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.

   1. (2) Conduct of yield curve control

   While significantly increasing the amount of JGB purchases, the Bank will expand the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points.

   The Bank will offer to purchase 10-year JGBs at 0.5 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted. In order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, the Bank will make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed-rate purchase operations.

   At the January MPM, the Policy Board decided upon the following guideline for market operations.

   Yield curve control

   1. (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.

   1. (2) Conduct of yield curve control

   The Bank will continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level, and will offer to purchase 10-year JGBs at 0.5 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted. In order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, the Bank will continue with large-scale JGB purchases and make nimble responses for each maturity by increasing the amount of JGB purchases and conducting fixed-rate purchase operations.

   At the March MPM, the Policy Board maintained the above guideline for market operations.

   With regard to asset purchases, the Policy Board decided at the October MPM to maintain the following guidelines.

   Guidelines for asset purchases

   With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

   1. (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. (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 December MPM, the Policy Board decided upon the following guidelines for asset purchases.

   Guidelines for asset purchases

   With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

   1. (1) The Bank will purchase ETFs and 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. (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. In adjusting the amount outstanding of corporate bonds, the Bank will give due consideration to their issuance conditions.

   At the January MPM, the Policy Board maintained the above guidelines for asset purchases.

   At the March MPM, the Policy Board decided upon the following guidelines for asset purchases.

   Guidelines for asset purchases

   With regard to asset purchases other than JGB purchases, the Bank decided to set the following guidelines.

   1. (1) The Bank will purchase ETFs and 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. (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.

   With regard to the future conduct of monetary policy, the Policy Board confirmed the following at all the MPMs held in the second 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

9. As of end-March, the Bank's total assets amounted to 735.1 trillion yen, a decrease of 0.2 percent from the previous year.