Semiannual Report on Currency and Monetary Control (Summary)
First Half of Fiscal 2023 (April-September 2023)
-- The semiannual report was submitted to the Diet in December 2023.
Bank of Japan
Economic Developments
During the period from April through September 2023, Japan's economy had recovered moderately.
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 improved moderately. In this situation, business fixed investment had increased moderately. The employment and income situation had improved moderately. Private consumption had increased steadily at a moderate pace, despite being affected by price rises. Housing investment had been relatively weak. Public investment had increased moderately.
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 2.5-3.5 percent, with energy prices pushing down the rate, while the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices had remained. Inflation expectations had risen moderately toward the end of the April-September period after being more or less unchanged.
Developments in Financial Markets and Conditions
Regarding global financial markets, yields on 10-year government bonds had increased, mainly reflecting solid economic indicators in the United States. Stock prices had risen in the United States, while they had declined in Europe in reflection of concern over a possible economic slowdown.
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 increased following the Bank's decision at the July Monetary Policy Meeting (MPM) to conduct yield curve control with greater flexibility. Issuance rates for CP had been at extremely low levels. Those for corporate bonds had declined against the background of improvement in supply and demand conditions, and then rose somewhat toward the end of the April-September period, reflecting an increase in their base rate.
The Nikkei 225 Stock Average had risen with market attention on, for example, solid corporate results and the yen's depreciation, and was in the range of 31,000-32,000 yen at the end of September.
In the foreign exchange market, the yen had depreciated against the U.S. dollar, albeit with fluctuations, with market attention on such factors as a widening of the yield differential between Japan and the United States. The U.S. dollar was in the range of 149-150 yen at the end of September. The yen had also depreciated against the euro on the whole during the April-September period.
With regard to corporate financing, demand for funds had increased moderately, mainly on the back of a recovery in economic activity and past high raw material costs. Firms' financial positions had been favorable. Meanwhile, in terms of supply of funds, financial institutions' lending attitudes as perceived by firms had remained accommodative.
The year-on-year rate of change in the monetary base (currency in circulation plus current account balances at the Bank) had turned positive, which reflected an increase in the amount outstanding of JGB purchases with a waning of the effects of 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). The rate for the money stock (M2) had been at around 2.5 percent.
MPMs
Four MPMs were held in the first half of fiscal 2023.
Regarding economic and financial developments, the Policy Board judged at the April and June MPMs that "Japan's economy has picked up, despite being affected by factors such as past high commodity prices." It then deemed at the July and September MPMs that "Japan's economy has recovered moderately."
In the conduct of monetary policy, the Policy Board decided at the April MPM to maintain the following guideline for market operations under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control.
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 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 June MPM, the Policy Board maintained the above guideline for market operations.
At the July MPM, the Policy Board decided to conduct yield curve control with greater flexibility. To this end, it decided upon the following guidelines for market operations and conduct of yield curve control.
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 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, while it will conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations. The Bank will offer to purchase 10-year JGBs at 1.0 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, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations and the Funds-Supplying Operations against Pooled Collateral.
At the September MPM, the Policy Board maintained the above guidelines for market operations and conduct of yield curve control.
With regard to asset purchases, the Policy Board decided to maintain the following guidelines at all the MPMs held in the first half of fiscal 2023.
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.
With regard to the future conduct of monetary policy, the Policy Board confirmed the following at all the MPMs held in the first half of fiscal 2023: "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."
The Bank's Balance Sheet
As of end-September, the Bank's total assets amounted to 741.5 trillion yen, an increase of 8.1 percent from the previous year.