Japan's monetary base growth slows as BOJ shifts from radical stimulus

Japan's monetary base growth:  In March, Japan's monetary base, reflecting the amount of cash in circulation, expanded at its slowest pace in seven months, signalling a departure from the radical stimulus policies implemented by former Governor Haruhiko Kuroda.

The Bank of Japan (BOJ) appears to be gradually phasing out remnants of its massive stimulus program, with analysts suggesting a continuation of the slowdown in cash circulation.

Last month, the BOJ abandoned its commitment to increasing the monetary base until inflation consistently exceeded its 2 per cent target.

Data from the BOJ revealed a modest 1.6 per cent year-on-year increase in March, marking the fifth consecutive month of deceleration and the smallest rise since August last year. 

Additionally, separate data indicated that the BOJ purchased 5.9 trillion yen ($39 billion) worth of government bonds outright in March, approximately half the amount bought in the same month the previous year.

The recent developments signal an official end to the radical stimulus measures initiated by former BOJ chief Kuroda. 

The central bank terminated eight years of negative interest rates and other unconventional policies, shifting its focus away from reflating growth with massive monetary stimulus.

Although the BOJ abandoned bond yield control, it pledged to maintain its monthly pace of bond purchases at around 6 trillion yen for the time being. 

Analysts stress that the BOJ remains cautious about raising interest rates or implementing quantitative tightening.

BOJ Governor Kazuo Ueda has indicated an eventual scaling back of bond purchases and a transition to market-driven long-term interest rates, but timing remains uncertain.

However, reducing the BOJ's balance sheet, which exceeds the size of Japan's economy, presents challenges.

Trimming bond purchases could lead to a sudden spike in yields, increasing the cost of financing Japan's major public debt.

Estimates suggest that even at the current pace of buying, the BOJ would acquire approximately 54 per cent of long-term bonds sold by the government in the fiscal year, notably higher than the average during the era of Governor Masaaki Shirakawa before Kuroda.

(With Reuters Inputs)