July 2026 Monetary Base Down YoY for 13th Month

Released Today: Monetary Base at ¥554.9 Trillion, Down 13.8% Year on Year

The monetary base for July 2026, released by the Bank of Japan today, stood at ¥554.9 trillion. This was a ¥4.3 trillion decline from the previous month (June: ¥559.2 trillion), equivalent to an approximately 0.8% month-on-month decrease. Year on year, it fell 13.8%, with the rate of decline widening slightly from June's 13.7%. According to BOJ statistics, the number of consecutive months of year-on-year decline continues to increase, indicating no change in the underlying trend of quantitative reduction.

The overnight call rate reached 0.978%, clearly up from 0.841% in June. The simultaneous decline in the monetary base and rise in short-term interest rates indicates that the BOJ is proceeding with monetary policy normalization on both the quantitative and interest-rate fronts.

[速報] Monetary Base Level—Continued Quantitative Reduction

July's monetary base of ¥554.9 trillion was the lowest level in the past 12 months. Compared with January's ¥589.4 trillion, this represents a decline of ¥34.5 trillion, or approximately 5.9%, over seven months.

Looking at the year-on-year trend, the rate of decline consistently widened from 9.5% in January to 13.8% in July. In particular, after narrowing temporarily from 11.6% in March to 11.3% in April, the decline widened again from May onward, remaining elevated in the 13% range in both June and July. These data indicate that the pace of balance-sheet contraction by the BOJ has not slowed.

[速報] Overnight Call Rate at 0.978%—A Phase of Effective Policy Rate Hikes

The overnight call rate reached 0.978% in July, approaching the 1% level. Its pace of change stands out when the call rate's movement over the past 12 months is reviewed.

The table shows that the rate, which had remained stable at around 0.73% from January through May, rose sharply for two consecutive months from June to July. Following June's increase of +0.113 percentage points, the rate rose another +0.137 percentage points in July, meaning that the pace of increase has accelerated rather than slowed. In step with the contraction in the monetary base, short-term money-market rate formation is moving in a tightening direction.

Position Within the Past 12-Month Trend

Viewed over a 12-month range, July was a month in which the monetary base was at its lowest level while the call rate was at its highest—positioned at the two extremes. This is the first time this combination has occurred, and it can be characterized as a phase in which quantitative reduction and rising interest rates reached their greatest intensity simultaneously.

Meanwhile, in the foreign-exchange market, USD/JPY moved in the direction of yen depreciation, from ¥156.7 in January to ¥162.6 in July. The yen's depreciation despite rising domestic interest rates suggests that multiple dynamics, including the Japan-U.S. interest-rate differential and overseas factors, may be at work; however, these data do not allow the factors behind exchange-rate movements to be identified.

Relationship with Corporate Sentiment—Tankan DI Remains on an Improving Trend

The BOJ Tankan's business conditions DI has continued to improve, in contrast to changes in the financial environment. In Q2 2026 (the June survey), the DI stood at 22 for large manufacturers and 37 for large nonmanufacturers, with both rising from the previous quarter.

• Large manufacturers: improved for four consecutive quarters, from 14 in 2025-Q3 to 22 in 2026-Q2
• Small and midsize manufacturers: steadily recovered from 1 in 2025-Q3 to 9 in 2026-Q2
• Outlook DI: 14 for large manufacturers and 29 for nonmanufacturers, indicating a somewhat more cautious outlook than current conditions

The continued improvement in the business conditions DI despite the rise in the call rate suggests that higher interest rates have not, at this point, significantly depressed sentiment in the real economy. However, the fact that the outlook DI remains below current levels may indicate that companies are factoring in future changes in the financial environment.

Market Reaction—TOPIX Remains Near Highs

TOPIX maintained an upward trend over the past month, rising from 4014.95 on July 21 to 4140.22 on August 18. Although there were short-term fluctuations, including a 2.52% decline on July 28, the index remained in the 4000 range after entering August and reached a high of 4197.20 on August 14.

The stock market's resilience even as the call rate rose to 0.978% and the monetary base contracted is consistent with the improving trend in the Tankan DI. However, the market declined for two consecutive business days on August 17 and 18, and profit-taking activity has recently been observed.

Outlook

The key points to watch are as follows.

• Whether the call rate will break above the 1% threshold. The focus will be on whether the pace of increase seen in June and July continues from August onward
• Whether the contraction in the monetary base will further widen the year-on-year rate of decline, or whether signs of a bottoming out will emerge
• How the cautious outlook reflected in the outlook DI will be reflected in current assessments in the next Tankan survey (September)
• With indicators such as M2 money stock listed as N/A this time, complementary analysis from the perspective of fund supply will be necessary once their release is awaited

The simultaneous progress of quantitative reduction and rising short-term interest rates may mark a turning point in the BOJ's policy management. It will be necessary to examine how these two vectors converge in the next set of released data.

Glossary

---

This column was automatically generated by AI integrating Bank of Japan statistics (monetary base, money stock, etc.), e-Stat public statistics, and market data as a monetary policy analysis resource. This is not a recommendation to buy or sell any financial instruments. Please make investment decisions at your own responsibility and consult professionals as needed.