Pricing implications of intervention and debt management in the primary market of Japanese government bonds

Kaoru Hosono, Daisuke Miyakawa and Shuji Watanabe

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

Abstract: The purpose of this paper is to empirically examine the pricing implications of the Bank of Japan's (BOJ) intervention in the primary market of Japanese government bonds (JGBs). Our analysis explicitly considers the Japanese government's debt management. We model the demand and supply of JGBs in multiple maturities as a simultaneous equation system and estimate it by using the price and quantity data on JGBs. The estimated demand function supports the preferred-habitat hypothesis, while the estimated supply function indicates that the Japanese government actively manages debt. The effect of the BOJ's intervention on the yield curve, which could have been sizable under weak arbitrage, is significantly offset by the Japanese government's debt management.

Keywords: Quantitative easing; Primary markets for government bonds; Price elasticities of demand and supply; Debt management (search for similar items in EconPapers)
JEL-codes: D E43 E52 E58 G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x2200213x

DOI: 10.1016/j.pacfin.2022.101918

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