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Assessing the Risks to the Japanese Government Bond (JGB) Market

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Author Info

  • Raphael W. Lam
  • Kiichi Tokuoka

Abstract

Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from the household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows from heightened sovereign risks in Europe. Over time, however, the market''s capacity to absorb new debt will likely shrink as population ages and risk appetite recovers. In the short term, a decline in fund supply from the corporate sector, where financial surpluses are abnormally high, and spillovers from global financial distress could push up JGB yields. Fiscal reforms to reduce public debt more quickly and lengthen the maturity of government bonds will help limit these risks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/292.

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Length: 19
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/292

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Keywords: Fiscal sustainability; Banks; Corporate sector; Financial risk; Public debt; Risk management; Sovereign debt; bond; financial assets; financial institutions; bonds; bond yields; financial sector; financial stability; financial system; fiscal deficits; interest rate risk; government bond; futures market; bond portfolios; financial markets; derivatives markets; government bonds; fiscal position; fiscal policy; expenditure cuts; fiscal adjustment; sovereign bonds; sovereign bond; treasury bonds; fiscal positions; fiscal variables; fiscal reforms; hedge; financial intermediaries; fiscal balance; hedge funds; government bond yields; foreign bond; tax revenue; debt stock; fiscal discipline; fiscal deficit; structural fiscal; fiscal consolidation; nominal interest rate; debt service; spending cuts;

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  1. Patrick Bolton & Olivier Jeanne, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," IMF Economic Review, Palgrave Macmillan, vol. 59(2), pages 162-194, June.
  2. Kiichi Tokuoka, 2010. "The Outlook for Financing Japan's Public Debt," IMF Working Papers 10/19, International Monetary Fund.
  3. C. Emre Alper & Lorenzo Forni, 2011. "Public Debt in Advanced Economies and its Spillover Effectson Long-Term Yields," IMF Working Papers 11/210, International Monetary Fund.
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Cited by:
  1. Zlatuse Komarkova & Vilma Dingova & Lubos Komarek, 2013. "Fiscal sustainability and financial stability," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2012/2013, chapter 0, pages 103-112 Czech National Bank, Research Department.
  2. Evelyne Dourille-Feer, 2012. "Les dessous de la dette publique japonaise," Working Papers 2012-29, CEPII research center.
  3. Azis Iwan J. & Mitra Sabyasachi & Baluga Anthony, 2013. "Global Shock and Regional Spillovers," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 19(2), pages 183-211, August.

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