Japan’s monetary base, commonly referred to as cash in circulation, declined in 2025 for the first time in 18 years as the central bank continued to unwind years of extraordinary stimulus, data released on Tuesday showed. The decline is expected to continue as Japan advances further along its policy normalisation path.
The Bank of Japan ended its decade-long monetary stimulus program in March 2024. The measures had included large-scale asset purchases, negative short-term interest rates, and yield curve control. The central bank said the decision reflected growing confidence that the economy was close to achieving its 2% inflation target on a sustainable basis.
Following the policy shift, the BOJ reduced its purchases of Japanese government bonds and shut down a lending support scheme that had encouraged financial institutions to expand credit.
As a result, the average monetary base in 2025 fell 4.9% year on year, marking the first decline since 2007, when the central bank last entered a rate-hiking cycle, according to official data.
In December, the average monetary base stood at 594.19 trillion yen ($3.79 trillion), down 9.8% from a year earlier. This marked the first time the figure dropped below 600 trillion yen since September 2020.
Economists expect the downward trend to persist as the BOJ continues to taper bond purchases and gradually raise interest rates.
With inflation running above the BOJ’s 2% target for nearly four consecutive years, the central bank lifted short-term interest rates to 0.75% from 0.5% in December.
BOJ Governor Kazuo Ueda has reiterated that the bank stands ready to raise rates further if economic growth and price developments evolve in line with its projections.
