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Maturity Structure and Supply Factors in Japanese Government Bond Markets

Author

Listed:
  • Ichiro Fukunaga

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently International Monetary Fund))

  • Naoya Kato

    (Associate Director, Institute for Monetary and Economic Studies (currently Research and Statistics Department), Bank of Japan)

  • Junko Koeda

    (Associate Professor, School of Political Science and Economics, Waseda University)

Abstract

Using our constructed database on the amount outstanding of Japanese Government Bonds (JGBs) categorized by holder and remaining maturity, we examine the effects of changes in the holders and maturity structures on the term structure of interest rates and the risk premium on long-term bonds. Both approaches using single-equation regressions and a term structure model confirm that the net supply of JGBs, the issuance (supply) by the government minus the demand by the preferred-habitat investors including the Bank of Japan (BOJ), had significant effects on long-term interest rates. The regression approach implies that the net supply effects were stronger in the zero interest rate periods, while this relationship was not found using the model approach. We also calculate the net supply effects of the BOJ's JGB purchases as part of its Quantitative and Qualitative Monetary Easing and compare the results with those obtained from a simple event-study analysis.

Suggested Citation

  • Ichiro Fukunaga & Naoya Kato & Junko Koeda, 2015. "Maturity Structure and Supply Factors in Japanese Government Bond Markets," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 33, pages 45-96, November.
    • Handle: RePEc:ime:imemes:v:33:y:2015:p:45-96
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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