Arslanalp, S., and R. Lam, 2013, “Outlook for Interest Rates and Japanese Banks’ Risk Exposures under Abenomics,” IMF Working Paper No. 13/213
Arslanalp, S. and T. Tsuda, 2014, “Tracking Global Demand for Advanced Economy Sovereign Debt,” IMF Economic Review, Vol. 62, Issue 3, pp. 430–464, 2014
Bowman, D., F. Cai, S. Davies, and S. Kamin, 2011, “Quantitative Easing and bank lending: evidence from Japan,” Discussion Paper 1018, Board of Governors of the Federal Reserve System (U.S.).
Butt N., R. Churm, M. McMahon, A. Morotz, and J. Schanz, 2014, “QE and the Bank Lending Channel in the United Kingdom,” Bank of England Working Paper No. 511.
International Monetary Fund, 2012, “Safe Assets: Financial System Cornerstone?” Chapter 3 in the Global Financial Stability Report 82, April (Washington DC).
Kamada, K. and J. Nakajima, 2013, “On the Reliability of Japanese Inflation Expectations Using Purchasing Power Parity,” Bank of Japan Working Paper Series, No. 13-E-13, September.
Kuroda, H., 2013, “Quantitative and Qualitative Monetary Easing”, Speech at a Meeting Held by the Yomiuri International Economic Society in Tokyo, April 12, 2013
Kurosaki, T., Y. Kumano, K. Okabe, and T. Nagano, 2015, “Liquidity in the JGB Markets: Evaluation from Transaction Data,” Bank of Japan Working Paper, No.15-E-2.
Nishiguchi, S., J. Nakajima, and K. Imakubo, 2014, “Disagreement in Households’ Inflation Expectations and its Evolution,” Bank of Japan Review, 2014-E-1, March.
Saito, Masashi and Yoshihiko Hogen. 2014, “Portfolio Rebalancing Following the Bank of Japan’s Government Bond Purchases: Empirical Analysis Using Data on Bank Loans and Investment Flows.” BOJ Reports & Research Papers, June
Sato, Takehiro, 2015, “Recent Economic and Financial Developments and Monetary Policy” speech at a Meeting with Business Leaders in Yamanashi Prefecture (Held in Kofu), June 10, 2015
Wright, Jonathan H., 2011, “Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset,” American Economic Review, Vol. 101, No. 4, pp. 1514–34.
According to a recent BoJ study, the 10-year JGB term premium has been compressed by about 80 basis points under QQE from March 2013 to December 2014 (Sato, 2015).
See Kamada and Nakajima (2013) for a discussion of the reliability of market-based indicators and the potential merits of using a purchasing power parity based measure. Nishiguchi, Nakajima, and Imakubo (2014) discuss the dispersion of survey-based measures and how this has changed under the new QQE framework.
The amount of interest rate risk associated with Japanese bank’s domestic bond holdings fell from ¥8.6 trillion at end-March 2013 to ¥7.5 trillion at end-2014, a drop of 13 percent (BoJ, 2015). By type of bank, interest rate risk was ¥2.7 trillion for major banks, ¥2.8 trillion for regional banks, and ¥2.0 trillion for shinkin banks.
However, this does not imply that QQE has not affected bank lending. For example, Saito and Hogen (2014) find that the decline in the interest rate risk of major Japanese banks as a result of QQE has been associated with higher bank lending, after controlling for loan demand, interest rate spreads, and the nonperforming loan ratio.
In late 2013, the GPIF with more than $1 trillion in assets under management changed the portfolio weight of foreign securities from 17 percent to 23 percent.
Remaining holders of JGBs mainly include households and foreigners. Household holdings of retail bonds are not eligible for BoJ purchases. JGB holdings by foreigners have recently been rising. International estimates, such as those in Arslanalp and Tsuda (2014), suggest that a large portion of foreign purchases of JGBs come from foreign central banks, whose demand is likely to be driven by long-term currency diversification needs.
The outstanding amount of repo transactions in Japan has been increasing significantly, in contrast to that in the U.S. Repo transactions on the Gensaki market increased from ¥12 trillion at end-2010 to ¥35 trillion at end-2014. Similarly, from end-2010 to end-2014, the net market values of OTC derivatives, after taking account of bilateral netting agreements, increased by 21 percent to about US$ 200 billion, or to ¥25 trillion.
In October 2014, the GPIF announced its new assets allocation ratios. The new ratios were 35 percent (± 10 percent) for domestic bonds; 25 percent (± 9 percent) for domestic stocks; 15 percent (± 4 percent) for international bonds; and 25 percent (± 8 percent) for international equities. As of March 2015, the GPIF’s asset were 39 percent in domestic bonds, 22 percent in domestic stocks; 13 percent in international bonds; and 21 percent in international equities (5 percent was invested in short-term assets).
The GPIF is the largest but not the only public pension fund in Japan. There are seven other public pension funds that manage about ¥50 trillion ($400 billion) of assets as of end-March 2015. Some of these funds will be integrated into the GPIF’s asset management scheme by October 2015, based on the legislation passed in 2012 to integrate public pension schemes. In March 2015, three of these funds with combined assets of ¥30 trillion announced that they will model the GPIF’s new asset allocation starting in October 2015.
Japanese life-insurance companies prefer to invest in domestic bonds because their liabilities are mostly yendenominated. But continued declines in JGB yields due to QQE are making it more difficult for insurers to secure the yields they have promised to pay customers. Hence they are increasing foreign security purchases, while hedging foreign exchange risks. In 2014, insurance companies reduced their JGB holdings for the first time in more than a decade, while accelerating foreign security purchases. Furthermore, there are two regulatory changes that may have encouraged Japanese insurers to increase foreign security holding, especially after 2012, when solvency requirements for insurers were revised and the capital charge for foreign bonds was reduced from 2 to 1 percent and the investment limit on foreign security holdings was removed.
These spillover scenarios were presented in the April 2015 GFSR (Annex 1.1).
Through the Securities Lending Facility, the BoJ lends back to dealers the bonds it is acquiring under its QQE program to ensure smooth functioning of the JGB market and avert temporary collateral shortages. In March 2015, the authorities raised the upper limit of the amount of sales per issue from ¥200 to ¥400 billion, and extended the number of days permitted for consecutive sales transactions per issue from 5 to 15 business days.