While revisiting an old economics book, I kept coming across terms like “monetary base” and “money stock,” and I found myself thinking, “Wait, what exactly do these mean?” Although I had encountered these words many times during my university macroeconomics classes, back then I had only memorized them as terms and never truly understood them in depth.
So this time, with a little help from ChatGPT, I decided to take another look at the monetary base and money stock, and explain, as clearly as possible, how changes in these figures can affect Japanese everyday lives.
What is Monetary Base? What is Money Stock?
At first, I introduce about these macroeconomics 2 keywords at simple words.
- Monetary Base (MB): This is the “seed money” created by the central bank (Bank of Japan). It includes cash in circulation and commercial banks’ deposits at the central bank. Think of it as the foundation of all money in the economy.
- Money Stock (MS): This is the money actually circulating in the economy, including cash held by householdsand bank deposits. It represents the money people and businesses can spend or invest.
In short:
- MB = the Bank of Japan’s money
- MS = money used by society
How Changes in MB Affect the Economy
- MB Increase: More “seed money”
- Prices tend to rise (money circulates more easily)
- Interest rates tend to fall (banks lend more)
- Employment tends to grow (companies invest and hire more)
- Economy becomes more active
- MB Decrease: Less “seed money”
- Prices tend to fall (money circulation slows)
- Interest rates tend to rise (banks lend less)
- Employment may decrease (companies hold back on investment and hiring)
- Economy slows down
💡 How the Bank of Japan influences MB:
- Increase: Buy government bonds from banks → banks have more money to lend
- Decrease: Sell government bonds → banks’ reserves shrink, reducing money in circulation
How Changes in MS Affect the Economy
Money stock reflects actual spending in the economy. Changes are driven by corporate and household behavior:
- MS Increase:
- People and companies borrow and spend more
- Consumption and investment rise
- Prices may rise moderately
- Employment grows
- MS Decrease:
- Borrowing and spending decline
- Money circulation slows
- Prices may stabilize or fall
- Economic activity weakens
💡 Analogy: MB is the water source; MS is the river. MB sets the potential, MS is the water actually flowing through society.
Japan Today (November 2025)
- Monetary Base (MB): 612.7 trillion yen, down 8.5% YoY – a significant decline, mainly due to reduced central bank operations and government bond purchases.
- Money Stock (MS, M2): 1,277 trillion yen, up 1.8% YoY – record high, driven by stable bank lending and corporate demand for funds.
Interpretation:
- While the central bank’s “seed money” is slightly shrinking, the amount of money actually circulating in society continues to grow.
Implications for Daily Life
- Prices: Gradual increase, but no sharp inflation – daily costs are rising slowly.
- Employment: Stable overall – the risk of large-scale layoffs is low, though wage growth may be limited.
- Housing Loans: Low interest rates persist, keeping borrowing costs manageable. MS growth supports household spending capacity for mortgage payments.
AI Summary: The Flow of Money in Japan Today and Its Impact on Daily Life
In Japan, the “source” of money (the monetary base) has slightly decreased, but the amount of money circulating in society (the money stock) is increasing. As a result, the economy, prices, and employment remain relatively stable, and housing loans are also fairly secure.
The overall economic situation in Japan is not extremely bad—it is experiencing only gradual changes. Understanding it this way can provide some reassurance.
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