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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: University of Tokyo
Akihiko Takahashi: University of Tokyo
Soichiro Takahashi: University of Tokyo
Takami Tokioka: GCI Asset Management

Asia-Pacific Financial Markets, 2018, vol. 25, issue 1, 47-70

Abstract: Abstract This paper examines an impact of Bank of Japan (BOJ)’s outright purchase on the Japanese government bond (JGB) 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 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)
Date: 2018
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Handle: RePEc:kap:apfinm:v:25:y:2018:i:1:d:10.1007_s10690-018-9238-5