The amount of money the Bank of Japan supplies to the economy fell 13.6% from a year earlier in October to an average of 532.6 trillion yen, data released by the central bank on Wednesday showed. The decline was the smallest since May, and on a seasonally adjusted basis the monetary base rose for the first time since February 2025.

The figures matter for investors across Asia because the monetary base is the clearest monthly gauge of how fast the BOJ is unwinding a decade of bond buying. A smaller balance sheet means less surplus yen in the banking system, which feeds into Japanese government bond yields, the yen and the cost of the carry trades that fund positions from Hong Kong to Jakarta. The data land weeks before a December policy meeting at which economists quoted by Reuters expect the bank to raise rates.

Reserves steady after a steep slide

Current account balances that banks hold at the BOJ averaged 413.9 trillion yen in October, 16.4% lower than a year earlier, according to the release. That compared with an 18.3% fall in September and an 18.9% drop in August, the steepest of the year. Reserve balances were down 15.2% at 382.2 trillion yen.

Cash in circulation changed little. Banknotes averaged 114.1 trillion yen, 2.3% below last year, and coins slipped 1.1%.

Seasonally adjusted, the monetary base grew at an annualized 4.9% from September, the BOJ said. Every month from March 2025 through September 2026 had shown a decline on that measure, according to the bank's long-term data, with annualized drops as large as 28.8% in August. End-of-month figures pointed the same way: the base stood at 537.2 trillion yen on Oct. 31, up from 535.4 trillion yen a month earlier.

One month does not make a trend. Current account balances swing with tax payments, government bond issuance and Treasury cash flows, and the year-on-year comparison remains deeply negative. The average monetary base is still about 20% below its level of October 2024, when it was 668.9 trillion yen, the long-run series shows.

The slowdown in bond buying continues. The BOJ's schedule for October and November sets outright purchases of coupon-bearing and inflation-linked JGBs at about 2.3 trillion yen a month. Offers scheduled for Wednesday covered bonds with up to one year left to maturity, those maturing in one to three years and those maturing in more than 25 years. The bank plans to publish its January to March 2027 purchase schedule on Dec. 25.

A balance sheet shrinking into a hiking cycle

The data follow the BOJ's Oct. 30 decision to keep its overnight call rate target at around 1.25%. The vote was 8-1. Board member Hajime Takata dissented and proposed a rise to 1.5%, arguing in the statement that with underlying inflation at the price target, the bank needed to move faster toward the neutral rate. The proposal was defeated. Capital Times reported on the decision and the faster ETF sales last week.

At the same meeting the bank more than doubled the pace at which it sells its exchange-traded fund holdings, to about 860 billion yen a year on a book value basis from about 330 billion yen, starting in January 2027. Those sales shrink a different part of the balance sheet from the bond runoff, but both move the BOJ further from the asset purchases it relied on for years.

Governor Kazuo Ueda has all but locked in a December rate increase to 1.5%, Reuters reported in an analysis on Nov. 2, citing his remarks after the meeting. Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute and a former BOJ official, told the news agency a December move was “pretty much a done deal.” Nomura Securities rates strategist Mari Iwashita expects the policy rate to reach 1.75% by around March, according to the same report.

Not every analyst sees urgency. Hirofumi Suzuki, chief FX strategist at SMBC, told Reuters on Oct. 30 that the bank faced no pressure to rush a hike. Masahiko Loo of State Street Investment Management called the October outcome a “boring hold” while pointing to an important shift in the bank's inflation assessment, and expected the next hike around the turn of the year.

What the numbers mean for the yen and JGBs

Where rates eventually stop is the open question. BOJ staff estimate the nominal neutral rate in a wide range of 1.1% to 2.5%, Reuters said, and board members have offered differing views within it. A slower drain on reserves gives the bank room to raise rates without squeezing bank liquidity as hard at the same time, which bond traders will weigh alongside the hiking path.

For Japanese government bonds, the combination of a shrinking BOJ footprint and higher policy rates leaves more supply for private investors to absorb. For the yen, the rate path counts for more than the size of the balance sheet, and the dollar fell against the yen after the Oct. 30 decision mainly because of Takata's dissent and the higher inflation forecast, an analyst quoted by Reuters said.

Minutes of the September meeting, at which the BOJ last raised rates, are due on Thursday, Nov. 5, followed by the summary of opinions from the October meeting on Nov. 10. The board meets next on Dec. 17 and 18.