Examining economic and financial developments since the 1990s, this paper discusses (1) the role of the money stock within the Bank of Japan's monetary policy and (2) why the relationship between the money stock and economic activity has been unstable in Japan.

Monetary base is generally defined as 'all central bank liabilities to the financial corporations and other sectors'. In Japan, it is the quantitative monetary indicator which represents 'the amount of currency supplied by the Bank of Japan (the Bank)' and consists of the current account...