Semiannual Report on Currency and Monetary Control (Summary)
First Half of Fiscal 2024 (April-September 2024)
-- The semiannual report was submitted to the Diet in December 2024.
Bank of Japan
Economic Developments
- During the period from April through September 2024, Japan's economy had recovered moderately, although some weakness had been seen in part.
Exports had been more or less flat. Industrial production had been more or less flat, although it had been pushed down by the suspension of production and shipment at some automakers in the first half of the April-September period. Corporate profits had improved, and business sentiment had stayed at a favorable level. In this situation, business fixed investment had followed a moderate increasing trend. The employment and income situation had improved moderately. Despite the impact of price rises and other factors, private consumption had been resilient in the first half of the April-September period and then on a moderate increasing trend in the second half. Housing investment had been relatively weak. Public investment had been more or less flat.
- 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 2-3 percent, as services prices had continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices had waned. Inflation expectations had continued to rise moderately.
Financial Developments
- In the money market, the uncollateralized overnight call rate had been in the range of 0 to 0.1 percent up until the July 2024 Monetary Policy Meeting (MPM). Following the change in the guideline for money market operations at the July MPM, the rate had been at around 0.25 percent.
With regard to developments in the bond market, 10-year Japanese government bond (JGB) yields had generally been in line with long-term yields overseas; after increasing through July, 10-year JGB yields had decreased at the beginning of August, and had been more or less flat thereafter.
The Nikkei 225 Stock Average had risen through early July, mainly reflecting solid corporate results, and then had declined sharply at the beginning of August amid a rapid deterioration in market sentiment. Thereafter, it had turned to a rise, and was in the range of 37,000-38,000 yen at the end of September.
In the foreign exchange market, the yen had appreciated against the U.S. dollar on the whole during the April-September period, reflecting attention to the yield differential between Japan and the United States. The U.S. dollar was in the range of 142-143 yen at the end of September. The yen had also appreciated against the euro on the whole during the same period.
- With regard to corporate financing, firms' funding costs had increased but had remained at low levels on the whole. Demand for funds had continued to increase moderately 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 3-4 percent. The rate of increase in the aggregate amount outstanding of CP and corporate bonds had been in the range of around 1.5-4.0 percent.
- The year-on-year rate of change in the monetary base (currency in circulation plus current account balances at the Bank) had been slightly negative, with a decline in the purchase amount of JGBs. The rate for the money stock (M2) had been in the range of 1.0-2.5 percent.
MPMs
- Four MPMs were held in the first half of fiscal 2024.
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."
- In the conduct of monetary policy, the Policy Board decided at the April and June MPMs to maintain the following guideline for money market operations.
The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent.
At the July 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 0.25 percent.
In addition, in accordance with the above change in the guideline for money market operations, the Policy Board made the following decisions, including changes to the interest rates applied to the Bank's measures.
- (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 0.25 percent.
- (2) Basic loan rate
The basic loan rate applicable under the complementary lending facility will be 0.5 percent.
- (3) Interest rates applied to new loan disbursements under the Fund-Provisioning Measure to Stimulate Bank Lending etc.
The interest rates applied to the Funds-Supplying Operation to Support Financial Institutions in Disaster Areas and the Funds-Supplying Operations to Support Financing for Climate Change Responses will be 0.25 percent. Regarding the Fund-Provisioning Measure to Stimulate Bank Lending, the Bank will provide the loans on a floating rate basis.
At the September MPM, the Policy Board decided to maintain the above guideline for money market operations.
Regarding purchases of JGBs, the Policy Board decided at the April MPM that the Bank would conduct the purchases in accordance with the following decisions made at the March MPM.
The Bank will continue its JGB purchases at broadly the same amount as before. In the case of a rapid rise in long-term interest rates, it will make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations of JGBs -- both of which can be done regardless of the monthly schedule of JGB purchases -- and the Funds-Supplying Operations against Pooled Collateral.
At the June MPM, the Policy Board decided that, regarding purchases of JGBs for the intermeeting period, the Bank would conduct the purchases in accordance with the above decisions, and that the Bank would reduce its purchase amount of JGBs thereafter to ensure that long-term interest rates would be formed more freely in financial markets. It was also decided that the Bank would collect views from market participants and that, at the next MPM in July, the Bank would decide on a detailed plan for the reduction of its purchase amount during the next one to two years or so.
At the July MPM, the Policy Board decided on the following plan to reduce the amount of the Bank's monthly outright purchases of JGBs so that it would be about 3 trillion yen in January-March 2026. The amount would be cut down by about 400 billion yen each calendar quarter in principle.
- (1) The Bank will reduce the planned amount of its monthly purchases of JGBs so that it will be about 3 trillion yen in January-March 2026. The amount will be cut down by about 400 billion yen each calendar quarter in principle.
- (2) At the June 2025 MPM, the Bank will conduct an interim assessment of the plan for the reduction of its purchase amount of JGBs. In principle, the Bank intends to maintain the plan for the reduction after the assessment, while it may modify the plan as appropriate, if deemed necessary after reviewing the developments in and functioning of the JGB markets. At the meeting, it will also discuss a guideline for its JGB purchases from April 2026 and announce the results.
- (3) In the case of a rapid rise in long-term interest rates, it will make nimble responses by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations of JGBs -- both of which can be done regardless of the monthly schedule of JGB purchases -- and the Funds-Supplying Operations against Pooled Collateral.
- (4) The Bank is prepared to amend the plan for the reduction of its purchase amount of JGBs at the MPMs, if deemed necessary.
With regard to the future conduct of monetary policy, the Policy Board confirmed the following at the April MPM: "If the outlook for economic activity and prices will be realized and underlying inflation will increase, the Bank will adjust the degree of monetary accommodation, while it anticipates that accommodative financial conditions will be maintained for the time being. 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 July MPM, the Policy Board confirmed the following: "While the future conduct of monetary policy will depend on developments in economic activity and prices as well as financial conditions going forward, given that real interest rates are at significantly low levels, if the outlook for economic activity and prices presented in the July Outlook for Economic Activity and Prices will be realized, the Bank will accordingly 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
- As of end-September, the Bank's total assets amounted to 753.3 trillion yen, an increase of 1.6 percent from the previous year.