Japan’s Monetary Base Falls 13.8 Percent in July as June Minutes Confirm Rate Rise
Japan’s monetary base continued to contract in July and the minutes of its June policy meeting, released on 5 August 2026, confirmed that the Bank raised its policy rate at that meeting by a vote of seven to one.
The monetary base averaged 5,549,259 hundred million yen in July, down 13.8 percent from a year earlier, according to the Bank’s monetary base release published on 4 August. That compares with a 13.7 percent annual decline in June, so the pace of contraction deepened only marginally over the month rather than accelerating.
| Monetary base, average amounts outstanding (hundred millions of yen) |
July 2026 | Annual change | June 2026 | Annual change |
|---|---|---|---|---|
| Monetary base | 5,549,259 | -13.8 percent | 5,592,039 | -13.7 percent |
| Banknotes in circulation | 1,150,060 | -1.9 percent | 1,148,870 | -1.8 percent |
| Coins in circulation | 45,831 | -1.1 percent | 45,933 | -1.1 percent |
| Current account balances | 4,353,368 | -16.6 percent | 4,397,236 | -16.4 percent |
| of which reserve balances | 4,020,507 | -15.3 percent | 4,089,751 | -14.6 percent |
On an end-of-period basis the monetary base stood at 5,575,718 hundred million yen in July against 5,599,849 in June, with reserve balances at 4,028,129 against 4,072,435. By our calculation the components sum exactly to the reported base in both months, and the contraction is overwhelmingly concentrated in current account and reserve balances, while banknotes and coins are declining much more gradually, by less than 2 percent a year.
The minutes of the Monetary Policy Meeting held on 15 and 16 June 2026 record a decision to raise the guideline for money market operations from around 0.75 percent to around 1.0 percent, effective 17 June 2026. The interest rate applied to the complementary deposit facility was set at 1.0 percent and the basic discount rate and basic loan rate at 1.25 percent.
The vote was seven to one. Himino Ryozo, Uchida Shinichi, Nakagawa Junko, Takata Hajime, Tamura Naoki, Koeda Junko and Masu Kazuyuki voted in favour. Asada Toichiro voted against, arguing that “regarding the impact of the situation in the Middle East, downside risks to production and employment were greater than upside risks to prices, and it was desirable for the Bank to maintain the guideline for money market operations.” Governor Ueda Kazuo was absent from the meeting, so eight of the nine board members cast a vote. Deputy Governor Himino chaired in his place under Article 16, paragraph 5 of the Bank of Japan Act, and the minutes record that the Governor submitted a written opinion through the chairman under Article 5, paragraph 2 of the Rules concerning Policy Board Meetings.
The Bank also confirmed the schedule for reducing its purchases of Japanese government bonds, cutting the planned monthly amount by around 200 billion yen each calendar quarter through to the January to March 2027 quarter.
| Planned monthly JGB purchases | Approximate amount |
|---|---|
| April–June 2026 | 2.7 trillion yen |
| July–September 2026 | 2.5 trillion yen |
| October–December 2026 | 2.3 trillion yen |
| January–March 2027 | 2.1 trillion yen |
| From April 2027 | 2 trillion yen |
The final step is smaller than the 200 billion yen quarterly increment, and the taper terminates at the end of March 2027, after which the monthly pace is held flat.
Why it matters: The June minutes settle a point of interpretation. The Bank’s standard phrasing about the guideline “remaining at” a level is used whether the level is held or changed, and in June the level itself moved up. Taken with a monetary base contracting close to 14 percent a year and reserve balances down 15.3 percent, the picture is of a policy rate being raised while the quantity of central bank money continues to fall. On our reading, the dissent is also informative: it was cast for easier policy on regional-conflict risk, not against the pace of tightening, which suggests the board’s centre of gravity remains on the tightening side. For Gulf exporters and investors, a higher Japanese policy rate alongside a genuinely shrinking monetary base matters for both energy trade settlement and for the carry flows that have supported regional asset demand.
Looking ahead: The next Monetary Policy Meeting is scheduled for 17 and 18 September 2026. Minutes of the 30 and 31 July meeting are due on 28 September, with further meetings on 29 and 30 October and 17 and 18 December.
Sources: Bank of Japan, Monetary Base (July), 4 August 2026; Bank of Japan, Minutes of the Monetary Policy Meeting on June 15 and 16, 2026, released 5 August 2026.
