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By Hideyuki Sano
TOKYO, Oct 12 (Reuters) - The slowest growth in Japan's money supply in 13 years is most likely *****the result of a shift of funds from cash to other assets, not a sign the economy is losing momentum, economists said on Thursday*****.
Japan's M1 money supply in September, covering cash and call deposits, grew 1.5 percent from a year earlier, the smallest increase since 1993, when the country's economy had been deeply troubled by the bursting of asset price bubbles.
A more widely watched measure of money supply -- M2 plus certificates of deposit (CDs) -- was up 0.6 percent in September, but the Bank of Japan revised down the August increase to 0.4 percent, another 13-year low, from an earlier reading of 0.5 percent.
But few economists are concerned about slow money growth. Many say the trend probably reflects a move from cash and deposits into other financial assets, such as bonds and investment trusts, which are not included in money supply.
The year-on-year rise in M1, the narrowest gauge of money supply, has been dwindling constantly since April, when it was up 5.1 percent, just after the BOJ in March ended its five-year-old super-easy policy of flooding the banking system with cash.
That policy, dubbed "quantitative easing", kept short-term interest rates around zero. It also reduced interest rates on term deposits to levels on a par with those on call deposits, prompting many savers to pile up their funds in call deposits.
That is now being unwound, especially after the BOJ raised rates to 0.25 percent from zero in July, its first rate hike in six years.
"Term deposits are now offering meaningful interest, so funds that had once concentrated in M1 are now moving out to other assets," said Hideo Kumano, a senior economist at Dai-ichi Life Research Institute. Continued...
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