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Japan’s impactful augmentation of quantitative easing sovereign-bond purchases

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  • Inaba, Kei-Ichiro

Abstract

This article examines how and to what extent large-scale government bond purchases in the Bank of Japan’s monetary policy affected two components of long-term interest rates over the period 2009–2015. The article divides market yields on popular 5 and 10-year government bonds into future policy-rate expectations with uncertainty and a specific type of term premia required by investors for the bonds’ demand/supply imbalances, by using overnight index swap rates as a proxy for the former. The Bank of Japan augmented the purchases substantially by starting Quantitative and Qualitative Monetary Easing (QQME) in 2013. The QQME became impactful in the sense that it encouraged investors to improve the first component whilst reducing the second component. These appeared mainly as persisting announcement-effects – upward level shifts of the expectations and downward ones of the term premia. The reduction of term premia was much greater for the 10-year maturity than for 5-year one and strengthened after an additional expansion of the QQME in 2014. The QQME is estimated to have enhanced 5-year sovereign bond yields by 11.9 basis points (bps) a month on average whilst reducing 10-year ones by 8.3 bps. The impact on the 5-year yields turned to be negative after the QQME expansion.

Suggested Citation

  • Inaba, Kei-Ichiro, 2020. "Japan’s impactful augmentation of quantitative easing sovereign-bond purchases," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
  • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301492
    DOI: 10.1016/j.najef.2020.101252
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    More about this item

    Keywords

    Bank of Japan; Quantitative easing; Term premia; Interest-rate expectations; Overnight index swap rates;
    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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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