Japan’s monetary base contracted in 2025 for the first time since 2007, underlining the Bank of Japan’s decisive shift away from decades of ultra-loose policy. Data released today showed the average balance of the monetary base fell -4.9% year-on-year, echoing the period when the BoJ last embarked on a rate-hike cycle.
The contraction accelerated toward year-end. The average balance in December stood at JPY 594.19 trillion, down -9.8% yoy and falling below the JPY 600 trillion mark for the first time since September 2020.
The decline reflects the BoJ’s ongoing exit from its decade-long stimulus, which began in 2024. Since then, the central bank has raised interest rates, slowed purchases of JGBs and wound down funding schemes designed to encourage bank lending. With policy normalization still underway, Japan’s monetary base is expected to continue shrinking as bond tapering and further rate hikes proceed.
