The Japanese are gradually reducing the amount of cash they keep in their savings accounts in a show of confidence about investing in financial markets, but it may also be sign of trouble for Japan's economic recovery.
Analysts say the slowing pace of growth in the monetary base (M0) shows the authorities are unwilling to keep printing money, raising the risk that Japan's third attempt at economic revival in a decade might be scuttled by a lack of monetary ammunition.
M0 - the total of cash and reserves banks hold with the Bank of Japan - fell to 11.9 percent annual growth in March from over 20 percent in October.
"A sharp slowdown in M0 growth creates a political problem for the BOJ as it becomes open to criticism that it has gone soft in the fight against deflation," said Richard Jerram, an economist with ING Securities in Tokyo.
"Which is ironic, as we do not think the BOJ has ever been anything but soft in the fight against deflation."
Eric Fishwick, an economist with brokers CLSA in Singapore, said the M0 growth decline means the BOJ was failing in its attempts to flood the system with more cash than it wanted to hold.
"When this happens, it is symptomatic of monetary policy being accommodative and not actually succeeding in stimulating anything," Fishwick said.
Some analysts see the fall in monetary base growth as a sign that BOJ policy is again failing, giving sceptics a feeling of deja vu.
They remember 1997, when a potential economic rebound was aborted by the BOJ's reluctance to ease interest rates, and 2000, when the revival was halted by the urgency to raise rates from zero.
The Bank of Japan ends a two-day monetary policy meeting on Friday and economists expect it to maintain short-term interest rates at zero, as it has since 2001 and to keep the target for banks' reserves at 30-35 trillion yen ($285.1-$332.6 billion).
Japan is again emerging from the economic slump brought on when the 1980s asset-price bubble burst.
For the first time since 1990 households are spending more, business confidence is up and stock prices are surging, with the Nikkei average gaining 47 percent last business year.
Furthermore, the trade surplus is at a multi-year high. Real GDP in the last quarter of 2003 rose at its fastest quarterly pace since June 1990 and capital expenditure (capex) is surging.
But few credit the Bank of Japan. "Japan is undergoing a cyclical recovery which is export-led and capex-led," said Paul Sheard, chief economist for Asia at Lehman Brothers in Tokyo.
Demand is coming from a booming China and others in Asia buying Japan's advanced television screens and computer chips and from US appetite for Japanese autos.
Most of the capital investment is in export industries, while bank lending has been falling and land prices are still sliding, although the pace of decline has slowed.
"We do not believe that quantitative easing, or more generally the policy settings of the government, have been appropriate or particularly effective," Sheard said.
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