Japan's monetary base in August showed the first increase from a year earlier in 18 months, but not because the Bank of Japan injected funds into the money market to ensure liquidity amid a credit crunch sparked by the US subprime mortgage woes, central bank officials said.
Monetary base, the amount of cash in circulation and banks' current account deposits at the central bank, showed a 0.7 percent rise largely because year-on-year drops in current account deposits slowed after consistently sharp drops since March 2006, when the BOJ ended its super-loose monetary policy. The BOJ had been flooding the banking system with excess cash in efforts to stop deflation for the preceding five years.
The outstanding amount of banks' deposits at the central bank had fallen sharply from April to August last year after the change in policy. The declines stabilised in August last year, a month after the BOJ raised interest rates for the first time in six years.
The BOJ's officials said the central bank's injection of funds last month to keep its policy rate near target had no impact on the average level of outstanding deposits during the month. "Our (money market) operations last month were as usual. They were implemented to keep the overnight call rate close to our target," a BOJ official said.
The amount of banks' deposits at the BOJ averaged at 8.68 trillion yen ($75 billion) in August, compared with 8.69 trillion yen in July. Bank notes and coins in circulation, meanwhile, have been increasing steadily. The central bank opted to leave monetary policy unchanged in August, keeping its key overnight call rate target at a decade-high 0.5 percent for the sixth straight month amid market jitters about the US subprime mortgage market.