On the effect of Bank of Japan's outright purchase on the JGB yield curve

Masafumi Nakano, Akihiko Takahashi, Soichiro Takahashi and Takami Tokioka
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Masafumi Nakano: Graduate School of Economics, University of Tokyo
Akihiko Takahashi: Faculty of Economics, University of Tokyo
Soichiro Takahashi: Graduate School of Economics, University of Tokyo
Takami Tokioka: GCI Asset Management

No CARF-F-419, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper examines an impact of Bank of Japan (BOJ)'s outright purchase on the JGB (Japanese government bond) yield curve. Particularly, we develop a simple state space model, which incorporates new factors regarding the BOJ's announcement for its outright purchase and the current market outstanding with standard level and spread factors. Based on the model with a filtering method, we also implement an empirical analysis with time series of the BOJ's announcement records during 2014/10/22-2017/8/3 in the quantitative-qualitative easing(QQE) period to estimate the sensitivities of interest rates against the changes in the market expectation for the net supply with each sector of JGB. We expect the current work provides a basis for considering quantitative effects on the term structure by BOJ's policy changes such as termination or significant reduction of the BOJ's outright purchase. For instance, our scenario analysis shows substantial increase in the 30 year yield with widening of 20-30 year spread.

Keywords: yield curve; QQE; Bank of Japan; scenario analysis; state space model; Kalman filter (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-08
New Economics Papers: this item is included in nep-mac
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