Japan August monetary base +1.2% y/y (prior -1.3%)

The data point is not going to move the yen very much at all. If you are interested in what it is though, read on …

The monetary base, also known as “base money,” “high-powered money,” or “M0,” refers to the total amount of a currency that is either in general circulation in the hands of the public or in the commercial banks’ reserves held in the central bank’s vaults. The monetary base serves as the foundation for the money supply in an economy and is typically controlled by the country’s central bank.

The monetary base consists of two main components:

  1. Currency in Circulation: This is the physical currency (coins and paper money) that is in the hands of the public, businesses, and non-banking institutions. It is the most liquid form of money and is used for immediate transactions.

  2. Bank Reserves: These are the deposits that commercial banks hold in their accounts with the central bank. Banks are required to hold a certain percentage of their deposits as reserves (required reserves) to ensure they can meet the demand for withdrawals from their customers. Banks can also hold additional reserves (excess reserves) above the required level. These reserves can either be kept as vault cash within the banks or as deposits at the central bank.

The central bank has various tools to control the monetary base, such as open market operations, the discount rate, and reserve requirements. By managing the monetary base, the central bank indirectly influences other broader measures of the money supply (like M1, M2, and M3), interest rates, and by extension, various aspects of the economy including inflation, employment, and economic growth.

Changes in the monetary base can have a multiplier effect on the money supply because of the fractional-reserve banking system. In such a system, commercial banks are only required to hold a fraction of their deposits as reserves and can lend out the rest, thereby creating new money.

The monetary base is around 674tln yen.

This article was written by Eamonn Sheridan at www.forexlive.com. Source