US, UK, and EMU Money Supplies Perk Up As Japan’s Sags

EMU Nominal money and credit growth have picked up and stabilized in the EMU. Over three months, EMU M2 growth is up to 2.4% over annualized compared to 1.2% over 12 months. Credit growth in the EMU is up to 2.3% annualized over three months compared to 1.1% over 12 months. It may be slow, but it is progress.

Money and credit growth have also improved over the past year in real terms. But both money and credit growth rates remain negative over all horizons in the table going back three years. There is progress, but this is not really normalcy.

The United States and the United Kingdom The U.S. and the U.K. both show accelerating nominal money growth. U.S. money growth is 3.8% over three months compared to 1.3% over 21 months. U.K. money growth is at 2% over three months compared to 0.8% over 12 months; it has also slowed over three months compared to six months.

Both U.S. and U.K. real balance growth rates have emerged to post not only stronger growth rates over three months compared to 12 months but also to post positive rates of growth over both three-month and six-month horizons.

Japan Japan is the ‘odd man out’ in this process as it is in a different portion of its business cycle. Both the EMU and the U.K. have begun easing and the U.S. has just announced that it will be heading down that path. But in Japan, the BOJ has had two rate hikes. Its nominal money growth has turned negative over three months and has decelerated from 12-months to 6-months to 3-months. Real money balances in Japan show deepening weakening and negative growth rates on all horizons in the table. Japan still has a heavy dose of braking in train while the central bank has been trying to unwind its easing posture from the pandemic and from its previously longer fight against deflation. Japan’s money slowdown looks like more substantial braking than what you would judge from overnight interest rate adjustments that the BOJ has made.

Summing up Realizing that Japan is in its own world with special problems, the rest of the countries in the table seem to be riding the same wave. However, this ride has been enabled by central banks easing rates which in turn was enabled by falling inflation. But inflation has been less prone to fall in recent months. That makes the path forward for policy more speculative. It is what everyone will be watching. All eyes are on central banks, but before that, we know the steps they take will depend on inflation and inflation has become less supportive for further rate cuts. So… keep an eye out for what happens next- inflation trends are now front and center.