Japan's key indicator of money supply grew 2.9 percent in April from a year before, an acceleration from the 1.9 percent gain in March, the Bank of Japan said Monday in a preliminary report.

The balance of M2 -- currency in circulation, money in demand-deposit accounts and "quasi" money -- plus certificates of deposit averaged 633.4 trillion yen per day in the reporting month, the central bank said.

The growth rates in the balance have been flagging in recent months as a result of weak cash demand in the private sector.

The balance of M2 plus CDs -- held principally by firms, individuals and local governments -- is widely considered to be the key money supply gauge showing the closest correlation to changes in economic activity.

Breaking down the April tally of M2 plus CDs, the BOJ said that currency in circulation grew 9.7 percent, up from 7.5 percent in March, and growth in money in demand-deposit and checking accounts accelerated to 13.3 percent from March's 11.2 percent.

Broader BOJ index

The Bank of Japan's redefinition Monday of the country's "monetary base" -- a closely monitored index used to determine the balance of money supply and growth rate -- will mean higher readings for that index.

The monetary base had previously been defined as the tally of cash in circulation and the cash reserves all banks are required to keep in the current accounts they have at the BOJ.

The BOJ's new definition is "the tally of cash in circulation and the money that all major financial institutions have at their current accounts at the central bank."

The BOJ's supply of liquidity to money-market players -- banks, brokerages and "tanshi" nonbank short-term money brokers, has increased steadily since Feb. 12, 1999, when the BOJ Policy Board voted to guide the overnight call money lending rate to essentially zero.

Tanshi play a key role in the call-money market by mediating transactions between lenders and borrowers.

The BOJ said brokerages and tanshi have come to hold huge amounts of cash in their accounts at the BOJ.

Policy Board member Kazuo Ueda said in September that a major part of the excess liquidity the BOJ has funneled into banks ends up in the current accounts of the tanshi, because banks that cannot find corporate demand for bank loans have lent excess funds to the tanshi at extremely low interest rates.

"The proportion of excess reserves ending up in the accounts of tanshi brokers has recently increased to about 75 percent," he said in an article contributed to a newspaper.

An application of the new definition to monetary base statistics would sharply inflate those figures since the adoption of the "zero-interest-rate policy," the BOJ said.

Citing an example, the newly defined balance of the monetary base in April would be 65.84 trillion yen, up 1.9 trillion yen over the corresponding figure that has been computed under the old definition, the BOJ said.

Tanshi brokers tolerate accepting such deposits in order to keep good business ties with commercial banks despite the lack of real demand for such money.