Table of Contents
This service uses statistical data published by the Bank of Japan, but the content of this service is not guaranteed by the Bank of Japan.
This service uses statistical data published by the Bank of Japan, but the content of this service is not guaranteed by the Bank of Japan.
The financial environment in February 2026 presents a phase where the BOJ's normalization process intersects with complex real-economy responses. According to BOJ statistics, the unsecured overnight call rate stands at 0.728%, a high level, while the monetary base has contracted to 589.4 trillion yen, a year-on-year decline of -9.5%. According to the MIC Statistics Bureau, the CPI (all items) slowed to +2.1% year-on-year, whereas core-core CPI (excluding fresh food and energy) remains sticky at +2.9%. METI's industrial production index recovered by +2.3% month-on-month, and the BOJ's Tankan shows the large-manufacturers DI at 15.0, indicating that the multi-layered effects of financial tightening on the real economy are becoming apparent.
BOJ statistics report the unsecured overnight call rate at 0.728% in February 2026. This level signals the continuation of rate increases within the normalization process and confirms that the BOJ is persisting with policy adjustments aimed at sustainably achieving its price-stability objective. At the same time, the monetary base is 589.4 trillion yen, down -9.5% year-on-year, indicating that quantitative tightening is proceeding in parallel.
The fact that both policy-rate measures and balance-sheet adjustments are moving toward tightening implies that the BOJ is advancing normalization through multiple channels. Maintaining the call rate at this level raises short-term funding costs in money markets, which transmits to banks' lending behavior and firms' funding decisions.
A year-on-year decline in the monetary base of -9.5% suggests the BOJ is steadily implementing an exit from prolonged QE. This contraction appears mainly driven by a reduction in BOJ current account balances, implying a compression of banks' excess reserves. Quantitative tightening operates through different channels than policy rates and can affect banks' balance-sheet adjustments and their capacity for credit creation.
BOJ statistics show the average contracted lending rate at 1.404%. This level indicates that increases in short-term policy rates are transmitting to lending markets, confirming higher funding costs for firms and households. The transmission path from the call rate to lending rates appears to be functioning, meaning monetary policy is reaching the real economy.
Higher lending rates are an important variable for firms' capex decisions and household consumption. In particular, small and medium-sized enterprises and interest-sensitive sectors may see profitability and investment plans directly affected by rising funding costs. The balance between banks' lending stances and firms' demand for funds will determine future credit-creation dynamics.
An unsecured overnight call rate of 0.728% reflects tighter short-term funding conditions. BOJ operations and market participants' cash management interact to produce this rate level. The functioning of short-term money markets is central to overall liquidity provision, and changes in the call rate affect banks' cash management and asset-allocation strategies.
The MIC Statistics Bureau reports that, in December 2025, CPI (all items) was +2.1% year-on-year, core CPI (excluding fresh food) was +2.4%, and core-core CPI (excluding fresh food and energy) was +2.9%. The divergence among these three measures offers important insights into the decomposition of inflation drivers.
While the all-items CPI slowed to +2.1%, core-core CPI remaining at +2.9% suggests underlying price pressures excluding energy remain significant. The 0.5 percentage-point gap between core CPI and core-core CPI reflects energy's contribution and illustrates how upstream commodity-price shifts transmit to consumer prices.
Compared with November 2025 — when CPI (all) was +2.9%, core CPI +3.0%, and core-core CPI +3.0% — the largest decline occurred in the all-items index, indicating that energy-price movements pushed the overall CPI down. Core-core CPI only edged down from +3.0% to +2.9%, implying that underlying pressures in services and processed food prices are relatively sticky.
BOJ statistics show the Corporate Goods Price Index (CGPI) at 128.4. The relationship between upstream producer prices and downstream consumer prices is a key measure of pass-through. By comparing CGPI movements with CPI measures, one can assess firms' ability to pass cost changes on to consumers and the margin adjustments occurring along distribution channels.
The persistence of core-core CPI at +2.9% likely reflects cost pressures faced by firms — such as rising labor and logistics costs — being passed into consumer prices. Considering the time lags between producer-price shifts and consumer-price responses, the duration and rate of pass-through are important factors for forecasting future inflation.
METI's seasonally adjusted industrial production index recorded 102.2 in February 2025, a month-on-month increase of +2.3%. The 2.3-point improvement from January 2025's 99.9 indicates a recovery in production activity, reflecting firms' production planning and inventory adjustments.
The Cabinet Office's coincident index (CI) stood at 114.5 and the leading index at 110.2 in December 2025. Although the coincident index slightly fell from 114.9 in November 2025, the leading index rose from 109.9 to 110.2, suggesting a cautiously positive signal for future economic activity. The lagging index was 110.8, down from 112.9, indicating dispersion across cyclical indicators.
Taken together, the monthly recovery in industrial production (+2.3%) and the mixed CI readings suggest the real economy retains some resilience under tightening. However, monthly volatility in production — including negative months such as -2.0% in August 2024 and -1.7% in November 2024 — means caution is warranted when assessing whether the recovery is sustained.
BOJ statistics report USD/JPY at 156.7 in February 2026. This exchange-rate level reflects the interest-rate differential between Japan and abroad and international capital flows, and it serves as an important indicator of how the BOJ's normalization affects forex markets. The domestic call rate at 0.728% relative to major foreign policy stances underpins the exchange-rate formation.
The BOJ Tankan's assumed exchange rates show that, in Q4 2025, all-size/ all-industry firms expected 147.06 yen and large-manufacturing firms expected 146.48 yen. The actual rate of 156.7 yen implies roughly a 10-yen gap to the yen-weak side from firms' assumptions. This divergence benefits exporters' profitability but can raise import costs and amplify upward pressure on consumer prices.
BOJ statistics list the nominal effective exchange rate (NEER) at 70.7 and the real effective exchange rate (REER) at 68.8. Effective exchange rates, weighted by major trading-partner currencies, are crucial for assessing Japan's international competitiveness and trade terms.
These NEER and REER levels historically indicate a depreciation of the yen in real terms. Such effective-rate levels boost exporters' price competitiveness while raising import prices and, through that channel, contributing structurally to domestic inflation. Accounting for both how policy affects exchange rates and how exchange rates affect prices and the real economy is essential for comprehensive policy assessment.
BOJ statistics show M2 at 1279.1 trillion yen in February 2026. Money stock reflects the currency supply created through banks' credit-creation activities and indicates the scale of funds circulating in the real economy.
The coexistence of a monetary base down -9.5% YoY and a maintained money stock suggests that banks' credit-creation functions are operating to some extent. The relationship between central-bank-supplied base money and the broader money stock is captured by the money multiplier. Sustained M2 amid base-money contraction may reflect firm lending activity and resilient demand for funds by firms and households.
An average contracted lending rate of 1.404% influences banks' lending stances. In a rising-rate environment, banks may gain from improved lending margins, but borrower demand can be suppressed. These countervailing dynamics affect both the scale and the quality of credit creation.
Components of the money stock — such as deposit currency and quasi-money — mirror households' saving behavior and firms' liquidity strategies. Under tightening, firms might hold more liquid buffers, expanding deposit balances and M2. Conversely, if investment opportunities or funding demand rise, funds could shift from deposits into real or financial assets.
The BOJ's Tankan for Q4 2025 shows the business conditions DI at 15.0 for large-manufacturing firms and 34.0 for large non-manufacturing firms. The large-manufacturing DI improved by one point from 14.0 in Q3 2025, confirming a gradual recovery in manufacturing sentiment. The outlook DI stands at 12.0, below the current DI, suggesting firms are cautiously projecting their operating environment.
Large non-manufacturing DI remains high at 34.0, highlighting the strength in domestic-demand-related sectors, particularly services. The outlook DI for non-manufacturing is 28.0, six points below the current DI, indicating some caution about future conditions.
Middle-sized manufacturing DI is 16.0 and small-sized manufacturing DI is 6.0; smaller firms report weaker sentiment, though both have improved quarter-on-quarter. Middle-sized manufacturing rose from 12.0 to 16.0, and small manufacturing improved from 1.0 to 6.0, suggesting relatively resilient corporate mindset despite tightening.
Despite a rise in funding costs to an average contracted lending rate of 1.404%, the improvement in business conditions DI suggests the real-economy earnings environment and demand are absorbing higher financial costs. For large manufacturers, the yen's depreciation relative to firms' assumed exchange rates may be supporting sentiment by improving export profitability.
However, the fact that outlook DIs are below current DIs means firms hold cautious views about future conditions. Accumulated effects of tightening, global economic uncertainties, and the sustainability of domestic demand all influence forward-looking assessments. Because policy transmission to the real economy involves lags, monitoring how current financial conditions will affect future corporate activity is essential.
Equity-market data show TOPIX rising from 3536.13 at the start of February 2026 to 3852.09 at month-end, a roughly 9% monthly increase. The uptrend strengthened in early to mid-February, peaking at 3855.28 on February 10, before a brief correction and renewed rise toward month-end.
TOPIX gains likely reflect market expectations of improving corporate profits and the market's assessment of the outlook for monetary policy. Improvements in Tankan sentiment and a recovery in industrial production may have supported equity valuations. The yen's depreciation beyond firms' assumed rates likely improved earnings prospects for exporters, contributing to equity gains.
Rising policy rates (call rate 0.728%) and lending rates (1.404%) alongside equity gains suggest market participants view normalization as compatible with improved corporate earnings and sustained growth. Although higher interest rates theoretically reduce present values of equities, actual price formation appears to prioritize earnings growth expectations and underlying economic strength.
Daily TOPIX moves show episodes of strong momentum — e.g., +3.10% on February 3, +2.29% on February 9, and +1.90% on February 10 — alongside volatility such as a -1.63% drop on February 13. Policy outlooks and macro releases are likely influencing investor sentiment.
As of February 2026, the financial and economic landscape requires complex judgment for continued BOJ normalization. While CPI (all items) has slowed to +2.1%, core-core CPI remains sticky at +2.9%, making the assessment of underlying inflationary pressure central to policy decisions. The BOJ's price-stability goal is a 2% year-on-year rise in consumer prices; core CPI at +2.4% is consistent with that target.
Improvements in business DIs and a month-on-month industrial production recovery of +2.3% suggest the real economy has some resilience to tightening. Yet the fact that outlook DIs are below current DIs and the slight decline in the coincident index warrant caution regarding the outlook.
Yen weakness beyond firms' assumed rates benefits exporters but may amplify inflation via higher import prices. Policy must therefore consider the bidirectional links between policy, the exchange rate, and inflation and the real economy.
A monetary-base contraction of -9.5% YoY indicates steady progress in quantitative tightening. Normalization through both rate and balance-sheet channels needs to be balanced with maintaining financial-stability and market functioning. Close attention to short-term market liquidity and banks' funding conditions is required in pacing policy adjustments.
Regarding prices, separating temporary effects from energy and food-price volatility from the underlying inflation trend is essential, as the divergence among the three CPI measures shows. The persistence of core-core CPI at +2.9% likely reflects structural factors such as wage increases and rising service prices linked to improved supply-demand balances. Ensuring these underlying pressures evolve at appropriate levels is necessary to achieve sustained price stability.
For corporate funding, the lending rate at 1.404% warrants monitoring of how investment decisions and funding demand respond, especially for SMEs and interest-sensitive industries where higher financing costs may constrain activity. Monitoring banks' lending stances and firms' liquidity positions will help confirm whether monetary transmission is proceeding as intended.
Equity-market trends reflect how participants evaluate the link between policy and the real economy. Although TOPIX gains signal optimistic profit expectations and underlying economic strength, the cumulative effects of tightening on future corporate performance and growth deserve continued scrutiny. Market volatility and shifts in investor sentiment should also be considered for financial-stability assessments.
Going forward, policy should aim to balance the sustained achievement of the price-stability objective with durable real-economic growth. The current mix — CPI (all) cooling to +2.1% while core-core CPI remains sticky at +2.9% — calls for cautious evaluation of inflation dynamics. Policymakers should judge the pace and timing of adjustments by closely watching whether corporate sentiment improvements and production recoveries are sustained and how cumulative tightening effects feed through to the real economy.
無担保コールレート（翌日物）: The unsecured overnight call rate at which financial institutions lend to each other without collateral for one-day maturities. It is a key operational target of BOJ policy and reflects short-term money-market liquidity conditions.
マネタリーベース: The total currency directly supplied by the central bank. It consists of BOJ banknotes outstanding, currency in circulation, and BOJ current account balances. It is an important indicator for quantitative policy.
マネーストック（M2）: The total money supply available to the economy as created through the banking sector's credit activities. It includes currency in circulation and deposits at domestic banks and is formed as a result of credit creation.
企業物価指数（CGPI）: The Corporate Goods Price Index measuring price changes for transactions between firms. It indicates upstream price trends and functions as a leading indicator for CPI movements.
コアCPI: Core CPI excluding fresh food. By removing volatile fresh-food prices, it captures the underlying trend in consumer prices and is a reference in the BOJ's price-stability assessment.
コアコアCPI: Core-core CPI excluding fresh food and energy. By excluding energy-price volatility, it gauges underlying inflationary pressure that reflects supply-demand balances.
実効為替レート: An index of the exchange rate weighted by trade shares with major partners. The nominal effective exchange rate (NEER) is in nominal terms; the real effective exchange rate (REER) adjusts for relative price movements.
日銀短観（業況判断DI）: The BOJ's quarterly Tankan survey of firms. The business conditions DI is calculated as the percentage of firms reporting 'favorable' minus those reporting 'unfavorable' and indicates corporate sentiment.
景気動向指数（CI）: The Cabinet Office's Coincident and Leading Indexes used to assess current and future economic conditions. It comprises leading, coincident, and lagging series to quantify business-cycle movements.
鉱工業生産指数（IIP）: The Industrial Production Index that indicates production levels in manufacturing and mining. It is an important indicator for assessing real economic activity.
貸出約定平均金利: The average contracted interest rate on new loans. It shows how changes in short-term policy rates transmit into borrowing costs faced by the real economy.
TOPIX: The Tokyo Stock Exchange's price index covering all issues on the Prime Market. It is a representative indicator of overall Japanese equity-market performance.
This column was automatically generated by AI integrating Cabinet Office GDP data, Bank of Japan statistics, e-Stat public statistics, and market data as a macroeconomic analysis resource. This is not a recommendation to invest in any specific security. Please make investment decisions at your own responsibility and consult professionals as needed.