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 monetary base for March 2026, published today, stood at ¥570.8 trillion, a decrease of ¥10.1 trillion from February's ¥580.9 trillion, equivalent to -1.7% month-on-month. Year-on-year it declined by -11.6%, marking a continued double-digit negative growth. According to BOJ statistics, this level indicates the continuation of quantitative tightening and confirms that the normalization process of monetary policy is proceeding steadily.
The March monetary base of ¥570.8 trillion represents a 1.7% month-on-month decline. This rate of decrease exceeds the January–February decline (¥589.4 trillion → ¥580.9 trillion, -1.4%). Year-on-year, the -11.6% figure is wider than February's -10.6%, signaling a strengthening of the BOJ's quantitative tightening stance.
Looking at the past three months, the series shows ¥589.4 trillion in January, ¥580.9 trillion in February, and ¥570.8 trillion in March, implying an average monthly reduction of roughly ¥9 trillion. This sustained contraction reflects the BOJ's planned reduction of market liquidity via measures such as cuts in government bond purchases and adjustments to current account balances.
Year-on-year trends show the negative gap widening from -9.5% in January to -10.6% in February and -11.6% in March, with the magnitude increasing by about one percentage point each month. This accelerating contraction suggests the BOJ is advancing monetary normalization in a phased, predictable manner, indicating a new phase in the exit from the extraordinary easing period.
The unsecured overnight call rate (O/N) for March was 0.728%, unchanged from January and February. BOJ statistics show this rate has remained flat for three consecutive months, demonstrating an extremely stable short-term interest rate formation in money markets.
A call rate of 0.728% sits within the BOJ's policy interest rate operating range, confirming that market operations are functioning appropriately. The fact that short-term rates have stayed flat while the monetary base contracted by 1.7% month-on-month indicates the BOJ is managing to reconcile quantitative adjustments with interest rate control.
Behind the stability in short-term rates amid quantitative tightening is the BOJ's fine-tuned market operations. By adjusting the pace of reductions in current account balances while managing liquidity in the short-term money market, the BOJ has been able to avoid sharp interest rate volatility.
Placing March's ¥570.8 trillion within the recent three-month sequence reveals a clear trend of quantitative tightening. The decline from ¥589.4 trillion in January to ¥570.8 trillion in March amounts to ¥18.6 trillion over two months, or a 3.2% decrease.
Year-on-year, the negative gap widened from -9.5% in January to -10.6% in February and -11.6% in March, expanding at roughly a one-point monthly pace. This steady widening implies the BOJ is implementing tightening in a predictable way, which reduces the risk of sudden shifts in the financial environment for market participants.
The call rate was unchanged at 0.728% from January through March. This three-month interest-rate stability was achieved despite an approximately 3% contraction in the monetary base, underscoring the BOJ's strong market-adjustment capabilities.
Money stock M2 was ¥1,279.1 trillion in January and ¥1,274.9 trillion in February, showing relative stability in monetary supply within the real economy despite the shrinking monetary base. This divergence suggests that private financial institutions’ credit-creation functions remain intact.
BOJ Tankan business conditions DI shows large manufacturers at 15 and large non-manufacturers at 34 in Q4 2025, both remaining in positive territory. Mid-sized manufacturers register 16 and small manufacturers 6; DI levels decline as firm size decreases, but overall an improving trend is observed.
The DI for large manufacturers improved by 3 points from 12 in Q1 2025 to 15 in Q4 2025. This improvement occurred even as the monetary base contracted by roughly 10% year-on-year, suggesting that quantitative tightening has not exerted excessive downward pressure on corporate operating conditions.
Forward-looking DI indicates greater caution: large manufacturers at 12 and large non-manufacturers at 28 show a more cautious outlook than current conditions. This caution may reflect firms’ recognition that continued monetary tightening could affect business activity going forward.
Notably, the DI for small manufacturers improved from 1 in Q3 2025 to 6 in Q4 2025, a 5-point gain. That small firms’ sentiment improved even under tightening suggests underlying resilience in the real economy.
TOPIX fell from 3,633.67 at the start of March to 3,497.86 at month-end, a decline of 135.81 points, or 3.7%. During the month, it rose to 3,717.41 on March 18 but then entered a correction phase, falling to 3,486.44 on March 23.
Volatility was particularly pronounced in late March: March 23 saw a day-on-day decline of -3.41%, and March 30 registered -2.94%, together exceeding a 6% drop over two days. This sharp fall coincided in timing with the accelerating contraction of the monetary base (YoY -11.6%), suggesting heightened market caution toward quantitative tightening.
Toward month-end, after a -1.26% drop on March 31, TOPIX rebounded sharply by +4.95% on April 1. This strong rebound can be interpreted as a correction to excess selling. Nonetheless, the overall monthly trend was downward, confirming that tighter financial conditions have had a measurable impact on the equity market.
The equity adjustment while the call rate remained stable at 0.728% suggests that market sentiment may be responding more to the quantitative aspect of tightening (monetary base reduction) than to short-term interest rates per se.
Several points merit attention for assessing future monetary policy operations. First, whether the monthly pace of monetary base contraction will continue at roughly 1.5–2.0% or whether adjustments will be made. Given that the YoY negative gap has widened for three consecutive months, the BOJ may be carefully evaluating the sustainability of the current reduction pace.
Second, how long the call rate’s stability can be maintained. Although the rate has held at 0.728% for three months, continued monetary base reductions could eventually tighten short-term money market liquidity and test the stability of short-term rates.
Third, forthcoming releases will include unpublished March figures for money stock M2, the Corporate Goods Price Index (CGPI), and average agreed lending rates. In particular, lending rate trends will be an important gauge of how monetary tightening is affecting the supply of funds to the real economy. Since February lending rate data remain unpublished, combined analysis with March data will be necessary.
Fourth, the BOJ Tankan for Q1 2026 is scheduled for publication in early April. It will be important to see how firms’ business condition assessments and funding assessments evolve as the monetary base contraction accelerates.
In FX markets, the yen moved toward appreciation with ¥156.7 in January and ¥155.1 in February, so continued monitoring is needed for any effects of tightening on the exchange rate. The real effective exchange rate (REER) was 67.3 in January and 67.0 in February, indicating relative stability and limited impact on external competitiveness to date.
The BOJ continues to steer a difficult course balancing quantitative tightening and interest-rate stability. The coming months’ statistics will be crucial inputs for judging the sustainability of this policy stance.
マネタリーベース: The total amount of currency supplied by the BOJ: the sum of issued banknotes, currency in circulation, and BOJ current account balances. It is directly controllable by the central bank and an important indicator of the quantitative aspect of monetary policy.
無担保コールO/N金利: The interest rate for unsecured overnight lending between financial institutions. It is one of the BOJ's operational targets and reflects short-term money market liquidity conditions.
量的引き締め: Quantitative tightening: a monetary policy that reduces the monetary base and market liquidity, implemented via measures such as reducing government bond purchases and lowering current account balances.
日銀短観業況判断DI: BOJ Tankan business conditions diffusion index (DI): from the BOJ's quarterly Short-Term Economic Survey of Enterprises (Tankan). It is calculated as the percentage of firms reporting 'good' minus those reporting 'bad' and indicates corporate sentiment.
マネーストックM2: Money stock M2: the sum of currency in circulation and deposits at domestic banks. Unlike the monetary base, M2 reflects the money supply in the real economy after private-sector credit creation.
実質実効為替レート（REER）: Real Effective Exchange Rate (REER): the nominal exchange rate adjusted for relative price changes between Japan and its trading partners. It is used to assess external competitiveness; a lower value generally indicates a weaker yen and higher competitiveness.
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.