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CHAPTER 4 CURRENCY AND FLOW OF FUNDS
This chapter covers currency and flow of funds. Contained are statistics on the volume of various types of currencies circulated and the flow of funds in Japan. The main data sources are "Bank of Japan Statistics", and statistics released at the website of the Bank of Japan. For finance and insurance, see "16 Finance and Insurance", for social insurance and pension, see "23 Social Security", and for the suspension of business with banks, see "7 Business Activities".
Financial statistics
Principal financial statistics presented in this Yearbook are obtained from "Bank of Japan Statistics", and the website of the Bank of Japan in which the Bank compiles main economic statistics with priority given to financial statistics prepared by the Bank.
Currency in circulation
Currency in circulation is the quantity of money in the market released by the Bank of Japan. It is the total quantity of banknotes issued and coins in circulation. Statistics have been compiled monthly since 1946 and the report for each month is published in the first part of the next month.
Monetary base and the Bank of Japan's transactions
The table on this subject shows the movement of the monetary base, which mainly consists of banknotes and current account balances, in terms of changes in the Bank's other assets and liabilities. It can be created by reconstructing the balance sheet of the Bank.
More specifically, the statistics can be compiled by the following steps. First, compute the monetary base by extracting "banknotes in circulation" and "current deposits at the Bank of Japan" from the Bank's balance sheet, and add coins in circulation. Second, rearrange asset and liability items (other than banknotes and current deposits at the Bank), capital account items and currency in circulation so that their total matches with the monetary base derived in the first step. Third, break down each item of the balance sheet and reorganise by the type of transactions conducted by the Bank.
Types of transactions include not only various market operations conducted by the Bank of Japan but also transactions between the Bank of Japan and the Government / foreign central banks, so that "Monetary Base and the Bank of Japan's Transactions" shows the overall picture of various transactions conducted by the Bank of Japan.
Monetary survey
This table is a consolidated and adjusted balance sheet of the "Monetary Authorities" consisting of the Bank of Japan and of "Deposit Money Banks", i.e., Domestically Licensed Banks, Foreign Banks in Japan, Shinkin Banks, Norinchukin Bank, Shoko Chukin Bank, Shinkin Central Bank, Japan Post Bank and other financial institutions. Statistics in this table are compiled in accordance with the international standard adopted by the International Monetary Fund. Figures for assets represent the credits classified by economic sector (listed by borrowers) and by type such as lendings and securities. The figures for liabilities represent debts classified by liquidity such as cash currency, deposit money and quasi-money (time and savings deposits) plus certificates of deposit.
In "Summary Table", "Accounts of Central Bank" and "Accounts of Depository Corporations" are consolidated and adjusted, with their principal assets and liabilities being included.
Money stock
Bank of Japan revised the former "Money supply" statistics, in view of the drastic change of financial environments such as privatisation of postal services and diversification of financial products, and renamed the statistics "Money stock". The money stock statistics record the aggregate amount of money, including cash currency in circulation and deposit money, held by non-financial corporations, individuals and local governments. The coverage of the money stock is not uniquely defined. In Japan, four indices, namely, M1, M2, M3, and L, are compiled and released. The definition of each index is as follows.
M1 = Cash currency in circulation + deposit money (deposited at depository institutions.)
M2 = Cash currency in circulation + deposits (deposit money, quasi-money and CDs deposited at domestically licensed banks, etc.)
M3 = Cash currency in circulation + deposits (deposit money, quasi-money and CDs deposited at depository institutions.)
Broadly-defined liquidity (L) = M3 + pecuniary trusts + investment trusts + bank debentures + straight bonds issued by banks + commercial papers issued by financial institutions + government securities + foreign bonds
(Domestically licensed banks, etc. : Domestically licensed banks (excluding Japan Post Bank), foreign banks in Japan, Shinkin banks, Shinkin Central Bank, Norinchukin Bank, and Shoko Chukin Bank
Depository institutions : "Domestically licensed banks, etc." and all other depository institutions including Japan Post Bank, Shinkumi Banks, The Shinkumi Federation Bank, labour banks, The Rokinren Bank, Agricultural Cooperatives, Prefectural Credit Federations of Agricultural Cooperatives, Fishery Cooperatives, and Prefectural Credit Federations of Fishery Cooperatives)
The range of money holders is defined as "non-financial corporations, individuals, and local governments, including municipal enterprises". Entities such as the central government, central bank, depository institutions, insurance companies, bank and insurance company holding companies, government-affiliated financial institutions, securities companies, and tanshi companies (call loan dealers) are excluded from money holders. Non-residents are also excluded from money holders.
Flow of funds statistics
Flow of funds statistics is the statistics to show the financial activities of the whole nation by recording the flow of funds between economic sectors such as enterprises, households and governments as well as their credit-debt relations by financial commodities (transaction items).
These statistics consist of the financial transaction table (flow table), which is to show the flow of funds in a given period of time, the assets and liability table (stock table), which is to show the outstanding assets and liabilities at the end of each period, and the reconciliation table, which is to show the difference between the changes of assets and liabilities from the preceding period and the amount of transactions (reconciliation amounts) in the financial transaction table. These were firstly compiled for 1954 and have been published quarterly since then. The prompt report is released 3 months after the reference quarter, and the final report is released 6 months after the quarter.
In conformity with the "institutional sectors" in the national economic account, the economic actors (sectors) are divided into financial institutions, nonfinancial corporations, general governments, households, private nonprofit institutions serving households, and overseas, with further sub-divisions in each category. On the other hand, the classifications (transaction items) of financial commodities (transactions or the contents of assets and liabilities) consist of cash and deposit, loans, securities other than shares, shares and other equities, insurance and pension reserves and their further sub-divisions. These sector and transaction items are grouped so that they can well reflect the economic functions and real economic conditions.
The role of the reconciliation table is as follows. When the amount of financial assets and liabilities are evaluated at the current price, it reflects not only the usual financial transactions such as the acquisition and disposals of financial assets and liabilities but also the changes due to the fluctuation of price levels. Thus the amount of usual financial transactions shown in "the financial transaction table" can only be made comparable to the changes in stock data shown in the financial assets and liabilities table by adding the price factors contained in the reconciliation table.