A key measure of the supply of money into Japan’s economy stopped rising for the first time under Bank of Japan Governor Haruhiko Kuroda’s leadership, triggered by the scaling down of the pandemic funding program.
(Bloomberg) — A key measure of the supply of money into Japan’s economy stopped rising for the first time under Bank of Japan Governor Haruhiko Kuroda’s leadership, triggered by the scaling down of the pandemic funding program.
Japan’s monthly-average monetary base fractionally declined to 656.8 trillion yen ($4.7 trillion) in August from 657 trillion yen a year earlier, according to Bloomberg calculations based on daily figures released by the central bank Thursday.
That means the central bank’s official monthly data Friday is likely to show a failure to increase for the first time since April 2012.
A drop in the money supply isn’t an indication of a shift toward policy tightening, as this was well expected after the BOJ decided to shrink its Covid program on improved funding conditions. Kuroda has said the monetary base will continue to increase as a trend until inflation overshoots 2% in a stable manner, in line with the central bank’s commitment.
Expanding the money supply was seen as a key goal in the BOJ’s aggressive battle to stoke inflation when Kuroda took the reins of the central bank in 2013. Its importance diminished when the BOJ started targeting short and long-term interest rates three and a half years later.
The outstanding amount of the Covid funding program fell to 32 trillion yen at the end of August, in a steady decline from a peak of 87 trillion yen in March, the final month before the program was shrunk, shifting its focus toward helping smaller companies.
Comparing the end of month figure, the monetary base dropped 2.5% from a year earlier in August, according to Bloomberg’s calculation.
Aware of the impact of the smaller virus program on the monetary base, BOJ board members discussed in January that the bank has to communicate clearly that an exit from the pandemic program is not an exit from monetary easing to achieve 2% inflation, according to the minutes of the meeting.
The BOJ is set to decide the fate of the remaining virus funding program at its September policy meeting. As it stands, it’s scheduled to end later this month.
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