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The balance of outstanding loans at the nation’s banks dropped 3.8 percent in May from a year earlier for the 41st consecutive month of decline, the Bank of Japan said Friday.

The continued decline in the balance of outstanding loans reflects sluggish demand for operating funds by companies amid the weakening economy.

When compared with the 3.4 percent drop in April, the decrease in May marks the first time in a year that the margin of decline has expanded.

The daily lending balance for the month came to an average of 446.38 trillion yen, the central bank said in a preliminary report.

Adjusted for such factors as loan securitization, exchange rate fluctuations and the allocation of loan-loss reserves, the lending balance fell 1.6 percent to 456.18 trillion yen, down for the 32nd straight month, the BOJ said.

The figures cover five different categories of banks: banks with nationwide branch networks, known as city banks; trust banks; long-term credit banks; regional banks; and second-tier regional banks.

On an unadjusted basis, the May balance at city banks, the largest lenders, fell 3.7 percent to 204.3 trillion yen, while that at regional banks, the second-largest, shed 1.2 percent to 131.35 trillion yen.

The loan balance slipped 6 percent to 44.82 trillion yen at second-tier regional banks, 6.2 percent to 38.66 trillion yen at trust banks and 8.8 percent to 27.24 trillion yen at long-term credit banks.

The daily balance of real deposits and certificates of deposit at city banks, regional banks and second-tier regional banks rose 0.9 percent to average 472.97 trillion yen, the central bank said.

The outstanding balance of commercial paper at the end of the month soared 37.3 percent to 23.38 trillion yen.

The central bank also said the balance of outstanding loans at foreign banks operating in Japan rose 30.4 percent in the reporting month to 7.89 trillion yen.

May money supply up

The key money supply indicator increased 2.9 percent in May from a year earlier, the Bank of Japan said in a preliminary report released Friday.

The average daily balance of M2 — cash in circulation, demand deposits and quasi-money — plus certificates of deposit, came to 648.8 trillion yen, compared with 649.1 trillion yen in April, the central bank said.

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

A breakdown of the tally showed cash in circulation grew 5.9 percent to 56.4 trillion yen, up from a 3.7 percent gain in April. Money in demand-deposit and checking accounts increased 7.3 percent to 196.6 trillion yen, compared with a 6.2 percent growth the previous month, the BOJ said.

The supply of quasi-money contracted 2.4 percent to 368.4 trillion yen, following a 1.4 percent drop in April.

Quasi-money refers to time deposits and other types of savings that cannot be immediately refunded on demand, including foreign-currency deposits and nonresidents’ yen deposits.

The CD balance grew 66.9 percent to 27.4 trillion yen, following a 35.4 percent rise in April.

Broadly defined liquidity grew 2.6 percent to 1.307 quadrillion yen in May, compared to a 3.1 percent rise in April.

The measurement includes postal savings, deposits at agricultural and fishery credit cooperatives, loan trusts and money trusts, bank debentures, and Japanese and foreign government bonds, as well as M2 plus CDs.

Wholesale prices

Domestic wholesale prices in May remained unchanged from the previous month while falling 0.6 percent from a year earlier for the eighth consecutive month of decline, the Bank of Japan said Friday.

The domestic wholesale price index came to 95.5 for May against a base of 100 for 1995, the BOJ said.

Prices of edible agricultural, livestock and fishery products rose 3.2 percent from the previous month, while petroleum and coal products increased 1.3 percent.

But prices of electrical machinery as well as transportation equipment fell 0.5 percent and iron and steel decreased 0.4 percent.

Export prices, measured in yen terms, rose 3.6 percent from a year before while decreasing 1.5 percent from the previous month, reflecting the appreciation of the currency.

Import prices, also measured in yen terms, increased 9.8 percent from a year earlier but slipped 1.4 percent from the previous month, the central bank said.

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