Arslanalp, S., and T. Tsuda, 2012, “Tracking Global Demand for Sovereign Debt for Advanced Economy Sovereign Debt,” IMF Working Paper No. 12/284 (Washington: International Monetary Fund).
Baba, N., 2012, “Sustainability of Debt Financing in Japan and the JGB Enigma,” Global Economics Paper No. 215 (New York: Goldman Sachs).
Hoshi, T., and T. Ito, 2012, “Defying Gravity: How Long Will Japanese Government Bond Prices Remain High?” NBER Working Paper No. 18287.
Ichiue, H., and Y. Shimizu, 2012, “Determinants of Long-term Yields: A Panel Data Analysis of Major Countries and Decomposition of Yields of Japan and the U.S.”, Bank of Japan Working Paper, No. 12-E-7, May.
Lam, W. R., and K. Tokuoka, 2011, “Assessing Risks in the Japanese Government Bond Market,” IMF Working Paper No. 11/292 (Washington: International Monetary Fund).
Laubach, T., 2003, “New Evidence on the Interest Rate Effects of Budget Deficits and Debt,” Federal Reserve Board Working Paper, April (Washington: Federal Reserve Board).
Poghosyan T., 2012, “Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies,” IMF Working Paper No. 12/271 (Washington: International Monetary Fund).
Prepared by W. Raphael Lam (APD).
The total tax-to-GDP ratio for Japan is still low at around 30 percent (including payment into the social security system) and has room to increase to a level comparable to European countries to eliminate the financing gap.
In Japan, households hold more than half of financial assets in cash or deposits. Hashiwagi and Lam (2011) examines the saving behavior across age and cohort groups using household survey data and finds that over the medium term, the effect of risk aversion on asset allocation toward government securities among the elderly is likely to exceed the impact of a reduction of elderly saving rates.
These new issues were not covered in earlier studies written on long-term financing aspects of JGBs (Tokuoka, 2010; Lam and Tokuoka, 2011; Hoshi and Ito, 2012; Baba, 2012). Poghosyan (2012) looked into the determinants of short-term and long-term yields across advanced countries.
Regression estimates for two groups of countries are included. Group 1 includes all countries except France and Italy as they are in the euro area that is broadly represented by Germany, while Group 2 includes both France and Italy.
Data on 5-year forward of 10-year tenor rates or 10-year forward of 10-year tenor rates are not available for long periods dated back to 1990 and are difficult to be estimated without 15-year or 20-year sovereign bonds in several countries.
See the accompanying Staff Report for the Article IV consultation with Japan and 2013 Spillover Report.
Including loans, bonds and debt holdings would increase interest rate risks equivalent to about one-third of Tier 1 capital in the regional banks for a 100-basis-point value based on BoJ estimates (Financial System Report, April 2013).