Bank of Japan Reports 2.0% Growth in M2 Money Stock in September

Japan’s M2 money stock grew 2.0% in September from a year earlier, the Bank of Japan reported Wednesday, matching August’s annual rate after growth slowed from a spring peak. The reading indicates that the country’s widely followed measure of cash and bank deposits continued to expand, but did not pick up speed on a year-over-year basis.

The average amount of M2 outstanding was ¥1,295.6 trillion, compared with a revised ¥1,296.5 trillion in August. Those are unadjusted monthly averages, so the small decline in their level does not contradict the positive annual growth rate. On a seasonally adjusted basis, the September average was higher than August’s, and the annualized rate of change from the previous month accelerated.

The figures come from the central bank’s preliminary September money stock report, released at 8:50 a.m. Japan time on October 14. The report measures changes in average outstanding balances against the same month a year ago. It also identifies revisions to data from January 2026 onward, an important qualification when comparing this release with figures published earlier in the year.

M2 growth has cooled since the spring

September extended a gradual moderation in M2’s annual growth rate. It reached 2.5% in May, eased to 2.2% in June and 2.1% in July, then registered 2.0% in both August and September. For the July-to-September quarter as a whole, growth averaged 2.0%, compared with 2.3% in the preceding quarter.

The current pace is still above the 1.5% recorded in September 2025. That comparison matters because a flat annual rate over two consecutive months is different from an outright decline in the stock of money over a year. September’s 2.0% figure means that the average amount covered by M2 was higher than in the corresponding month of 2025.

The monthly adjusted readings tell a somewhat different, shorter-term story. The BOJ put September’s seasonally adjusted M2 average at ¥1,297.2 trillion, up from ¥1,294.6 trillion in August. Its seasonally adjusted month-to-month change, expressed at an annualized rate, increased to 2.4% from 1.3%. That does not establish a lasting acceleration, but it shows why the unchanged 2.0% annual figure should not be read as evidence that the measure stopped growing in September.

M2 is based on currency in circulation and deposits with a specified group of banks and similar institutions. It includes deposit money, quasi-money such as time and foreign-currency deposits, and certificates of deposit. The BOJ publishes this aggregate as part of a wider set of indicators rather than as a direct count of new bank lending or a measure of how rapidly households are spending. Changes in money balances can reflect savings decisions and shifts among financial assets as well as financing activity.

Cash and demand deposits lag broader liquidity

The details of September’s report show that money stock growth was uneven across the BOJ’s measures. M1, which consists of currency in circulation and deposit money, declined 0.2% from a year earlier after a revised reading of no change in August. Currency in circulation fell 1.3%, the same annual decline reported for August, while deposit money was unchanged from a year earlier.

By contrast, quasi-money increased 4.7% year over year, faster than August’s revised 4.3%. Certificates of deposit fell 14.0%, compared with an 8.2% decline in August. These components do not all move together, which helps explain why the headline M2 growth rate can hold steady even as its underlying categories change direction or pace.

M3, which covers a broader set of deposit-taking institutions than M2, grew 1.2% in September, unchanged from August. The average M3 balance was ¥1,638.3 trillion. The different rates for M2 and M3 should not be treated as competing estimates of the same pool of deposits: their institutional coverage differs, so the two series answer related but distinct questions.

The broadest measure in the release, known as L or broadly defined liquidity, rose 4.3% from a year earlier, down slightly from a revised 4.4% in August. Its average outstanding value reached ¥2,344.3 trillion. L includes M3 and other financial assets held by the sectors covered by the statistics, including investment trusts and government securities.

Some of those additional assets expanded more rapidly than the narrower money aggregates. Investment trusts showed 14.0% annual growth in September, and government securities rose 19.5%, according to the BOJ’s breakdown. These figures help put L’s higher growth rate in context, although the release by itself does not establish how much each category contributed to the overall annual change without considering its size and other movements.

September’s data follow the BOJ’s rate increase

The money stock reading arrives in a different interest-rate environment from the one prevailing earlier this year. At its September 17-18 monetary policy meeting, the BOJ voted 7-2 to lift the target for the uncollateralized overnight call rate to around 1.25%. The new guideline took effect on September 24, toward the end of the month covered by the money stock figures.

In explaining the decision, the central bank said underlying consumer-price inflation was approaching its 2% price stability target and financial conditions remained accommodative. It also pointed to risks involving energy prices, foreign exchange rates and demand linked to artificial intelligence. Those judgments belong to the BOJ’s monetary policy assessment; the September money stock release does not establish that any one of those forces caused its M2 reading.

There is an important distinction between the two percentages. M2 growth of 2.0% describes the year-over-year change in an aggregate of money holdings. The BOJ’s 2% inflation target concerns the rate of increase in consumer prices. Matching numbers do not mean that money growth and inflation are identical or that the money stock reading has achieved the central bank’s price objective.

The timing also limits what can be inferred about the rate increase. Most of September elapsed before the new policy guideline became effective, and the published money stock figures summarize average holdings across the entire month. They cannot, on their own, show whether the September rate move changed the pace of credit creation or deposit growth. Evidence on lending, financial conditions and prices would be needed to assess those effects.

The BOJ’s next monetary policy meeting is scheduled for October 29-30, with its quarterly outlook due on October 30. That assessment will provide a more direct account of how policymakers view inflation, economic activity and financial conditions than the September M2 figure alone.