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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 BOJ today released the flash figure for the monetary base in February 2026: 580.9 trillion yen, a 10.6% decline year-on-year, marking a double-digit contraction. The call rate (unsecured overnight) has been trading at 0.728%, confirming that the BOJ's policy normalization is progressing steadily on both the quantity and interest-rate fronts. In the BOJ Tankan for Q4 2025, the business conditions DI for large manufacturers remained on an improving trend at 15, indicating that corporate sentiment has stayed resilient despite a tightening financial environment.
BOJ statistics show the monetary base at 580.9 trillion yen in February 2026, a 10.6% decline from the same month a year earlier, underscoring continued balance-sheet reduction by the BOJ. This level reflects a substantial contraction from the peak of the large-scale, qualitative and quantitative easing (QQE) period.
The double-digit year-on-year decline in the monetary base largely reflects the BOJ's phased reduction of JGB purchases and adjustments in commercial banks' current account balances at the BOJ. The 580-trillion-yen range represents an important milestone in the financial normalization process.
Alongside quantitative reduction, clear changes are observable in short-term money markets. The call rate (unsecured overnight) trading at 0.728% indicates that the BOJ's policy-rate guidance is functioning. This rate level is an important signal that the departure from a zero-interest-rate regime has been firmly established.
The call rate in February 2026 held at 0.728%, showing stability versus the prior month. This level aligns with the BOJ's policy-rate guidance and indicates that the interest-rate formation mechanism in financial markets is operating normally.
Compared with the era of zero/negative interest-rate policy, the current 0.7% range materially affects financial institutions' profitability and their funding-allocation behavior. In short-term money markets, transactions based on this rate level are becoming the norm, suggesting wider normalization across the financial system.
The concurrent monetary base contraction and rise in short-term rates make clear that the BOJ is pursuing normalization through both balance-sheet reduction and interest-rate policy. This combination functions as a strategy to seek an exit from an accommodative stance while maintaining financial-system stability.
According to the BOJ Tankan for Q4 2025, the business conditions DI for large manufacturers stood at 15, up 1 point from 14 in the previous quarter. This improvement continues a trend from 12 in Q1 2025, indicating that firms' sentiment remains firm even under a tightening financial environment.
The DI for large non-manufacturers remained high at 34, confirming robustness in domestically driven economic activity. However, the outlook DI for that group fell to 28—6 points below the current DI—showing firms' caution about future operating conditions.
Notably, the DI for small- and medium-sized manufacturing firms improved to 6 in Q4 2025, up 5 points from 1 in the prior quarter. This improvement outpaced that of large firms and suggests that changes in the financial environment are also propagating to the SME sector. The DI for mid-sized manufacturers rose to 16, up steadily from 11 in Q1.
A call rate of 0.728% directly affects corporate funding costs. The improving trend in the Tankan business conditions DI suggests that the current rate level is not excessively suppressing corporate activity. Nonetheless, the fact that forward-looking DIs are below current levels reflects firms' caution about forthcoming changes in the financial environment.
TOPIX rose from 3,536.13 on February 2 to 3,938.68 on February 27, an increase of about 11.4% from early to late February. This market performance suggests that equities can remain firm even amid financial tightening.
Particularly from early to mid-February, TOPIX climbed stepwise from the 3,500s to the 3,800s. On February 9 it jumped 2.29% to 3,783.57 and on February 10 it rose another 1.90% to 3,855.28, recording consecutive large gains. Those moves imply that market participants do not perceive the combination of monetary base contraction and a call rate in the 0.7% range as overly restrictive.
After peaking at 3,938.68 on February 27, TOPIX adjusted to 3,772.17 on March 3, a correction of about 4.2%. While market volatility is present to some degree, equities have remained relatively resilient while pricing in policy normalization.
Key upcoming releases this month include money stock M2, the Corporate Goods Price Index (CGPI), and the average contracted loan rate. These statistics will be important for assessing how the monetary base contraction and higher call rates are affecting the real economy and price developments.
M2 movements will be especially significant for gauging the extent to which the 10.6% year-on-year decline in the monetary base is transmitting into broader money supply. Publication of the average contracted loan rate will offer a concrete measure of how short-term rate increases are being passed through to borrowing costs for firms and households.
The fact that forward-looking DIs in the Tankan are below current levels indicates firms' cautious stance toward forthcoming changes in the financial environment. The BOJ is likely to continue managing the pace of monetary base reduction and the call-rate guidance carefully while monitoring effects on the real economy.
That equities have stayed firm during the normalization phase suggests the current policy stance has been accepted by markets. Nonetheless, upcoming statistics could change market perceptions of the financial environment, so attention will focus on the data release schedule this month.
Monetary base: The total currency supplied by the BOJ. Composed of banknotes issued, coins in circulation, and BOJ current-account balances. A fundamental indicator of the quantitative dimension of monetary policy.
Call rate (unsecured overnight): The interest rate on unsecured overnight loans between financial institutions. A representative short-term market rate that the BOJ targets through its policy-rate guidance.
BOJ Tankan business conditions DI: The business conditions Diffusion Index from the BOJ Tankan, the BOJ's quarterly short-term corporate survey. Calculated as the percentage of firms reporting 'good' conditions minus the percentage reporting 'poor' conditions.
TOPIX: Tokyo Stock Price Index. A market-capitalization-weighted index covering all issues on the TSE Prime Market. A representative indicator of overall movements in the Japanese equity market.
Financial policy normalization: The process of transitioning from large-scale monetary easing back to conventional policy operations, including reducing quantitative easing and raising policy rates to return the financial environment to normal conditions.
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.