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Pricing implications of intervention and debt management in the primary market of Japanese government bonds

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  • Hosono, Kaoru
  • Miyakawa, Daisuke
  • Watanabe, Shuji

Abstract

The purpose of this paper is to empirically examine the pricing implications of the Bank of Japan's (BOJ) intervention in the primary market of Japanese government bonds (JGBs). Our analysis explicitly considers the Japanese government's debt management. We model the demand and supply of JGBs in multiple maturities as a simultaneous equation system and estimate it by using the price and quantity data on JGBs. The estimated demand function supports the preferred-habitat hypothesis, while the estimated supply function indicates that the Japanese government actively manages debt. The effect of the BOJ's intervention on the yield curve, which could have been sizable under weak arbitrage, is significantly offset by the Japanese government's debt management.

Suggested Citation

  • Hosono, Kaoru & Miyakawa, Daisuke & Watanabe, Shuji, 2023. "Pricing implications of intervention and debt management in the primary market of Japanese government bonds," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x2200213x
    DOI: 10.1016/j.pacfin.2022.101918
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    More about this item

    Keywords

    Quantitative easing; Primary markets for government bonds; Price elasticities of demand and supply; Debt management;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D - Microeconomics

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