TOKYO, Oct. 4 (Xinhua) -- Japan's monetary base stood at a fresh record high in September for the 10th consecutive month, owing to the Bank of Japan (BOJ) continuing to pump markets with liquidity under its multi-pronged easing measures to combat deflation, the central bank said Tuesday.
According to the latest BOJ data, the monetary base at the end of last month, comprising cash in circulation and the balance of current account deposits held by financial institutions at the bank, stood at 412.84 trillion yen (4.04 trillion U.S. dollars), up 22 percent compared to the same time a year earlier.
The largest component of the monetary base, meanwhile, the balance of financial institutions' current account deposits at the BOJ, stood at 311.83 trillion yen with an increase of 28.7 percent on year, the central bank said.
The BOJ in September opted to hold its key rates steady but unrolled some fresh measures regarding its short and longer term approaches to its policy framework including the addition of a new interest rate target and a provision that would allow inflation to overshoot its target.
Following a two-day policy board meeting, the central bank announced in a statement that following an extensive assessment of the effects of its monetary policy on the economy, including its decision to plunge its interest rate into negative territory to spur lending from financial institutions, it would introduce a "QQE with Yield Curve Control" as the nucleus of its new policy framework.
The yield control curve will entail the BOJ controlling both short- and long-term interest rates with another key component being an "inflation-overshooting commitment," the bank said.
This refers to the bank's commitment to expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI) exceeds the price stability target of 2 percent and stays above the target in what the bank described as a "stable manner."
In terms of its short-term policy interest rate, the central bank said it 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. Its long-term interest rates, the BOJ said, will see the bank purchase Japanese government bonds (JGBs) so that 10-year JGB yields will hover at the current level of about zero.
The BOJ also added that it will maintain bond purchases at the current annual pace of 80 trillion yen.
But with regards to the pace of the bank's monetary base expansion, some analysts said Tuesday that this may have to be slowed due to increasing focus on controlling its yield curve, which could mean a lower purchasing level of assets.
Japan's monetary base refers to the amount of currency that is either circulated in the hands of people living in Japan or in domestic commercial bank deposits held in the central bank's reserves.
As an official measure of the Japanese money supply, the monetary base shows the immediate impacts of monetary policy actions and can give an indication of the future direction of inflation. An expansion in the monetary base is generally inflationary while a decline will likely have the opposite effect.
The Japanese government maintains a measure of control over the monetary base by buying and selling government bonds in the open market.
The central bank's recent easing of monetary policies has facilitated the increases in the recent monetary base, analysts said.
