Japan’s cash in circulation falls for first time in 18 years in 2025 on BOJ stimulus exit

[TOKYO] Japan’s monetary base, or cash in circulation, declined for the first time in 18 years in 2025 as the central bank weaned off massive policy support, data showed on Tuesday, a trend that is likely to persist as it proceeds with policy normalisation.

The Bank of Japan (BOJ) ended a decade-long stimulus last year, consisting of huge asset buying, negative short-term interest rates and a bond yield control, citing that the economy was on the cusp of sustainably achieving its 2 per cent inflation goal.

It has since slowed purchases of Japanese government bonds (JGB) and terminated a funding scheme that incentivised financial institutions to boost lending.

Reflecting such moves, the average balance of monetary base in 2025 dropped 4.9 per cent year-on-year, marking the first fall since 2007, when the BOJ was embarking on its previous rate-hike cycle, data showed.

The average balance of monetary base in December stood at 594.19 trillion yen (S$4.9 trillion), down 9.8 per cent from a year ago, and falling below the 600 trillion-yen mark for the first time since September 2020.

Analysts expect Japan’s monetary base to continue falling as the BOJ proceeds with bond tapering and rate hikes.

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With inflation surpassing BOJ’s 2 per cent target for nearly four years, the central bank raised short-term rates to 0.75 per cent from 0.5 per cent in December. Governor Kazuo Ueda stressed the bank’s readiness to continue raising rates if economic and price developments move in line with its forecast. REUTERS