Japan’s most closely watched money supply gauge rose 2 percent in February from a year earlier, but the balance of quasi-money — mostly in time deposits — fell a steep 11.1 percent, the Bank of Japan said Monday.

The average daily balance of M2 — cash in circulation, demand deposits and quasi-money — plus certificates of deposit, came to 672 trillion yen, compared with a revised 675.9 trillion yen in January, the central bank said.

The balance of quasi-money totaled 317.2 trillion yen, following a 12 percent drop in January. It fell by a record 13.8 percent in June.

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

The balance of time deposits has been steadily falling, in step with a surge in the balance of demand deposits, since before April last year when the government imposed a 10 million yen per-depositor cap on refunds guaranteed for time deposits in the event of a bank failure.

Consequently, numerous firms and individuals have moved money from time deposits into demand deposit accounts, fueling concern that the credit squeeze will worsen, because time deposits are the most important source of capital for bank loans.

The balance of M2 plus CDs, held principally by corporations, individuals and local governments, therefore has a close correlation to changes in economic activity.

The central bank revised the January growth rate of the balance of M2 plus CDs to 1.9 percent from the preliminary figure of 2 percent released on Feb. 10.

The year-on-year growth rate in the balance of M2 plus CDs sank below the 2 percent line for the first time since November 2000.

The slowdown in the growth rate indicates that corporate demand for bank loans has been slowing due to the anemic economy, analysts said.

A breakdown of the data shows that cash in circulation rose 7.8 percent to 66.1 trillion yen in February, compared with a revised 8.6 percent gain in January, and that demand deposits — ordinary deposits and checking accounts — climbed 25.1 percent to 269.9 trillion yen, following a 28 percent rise in January.

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