Price Developments of Japanese Government Bonds in 2003

Takashi Nakayama, Naohiko Baba and Tatsushi Kurihara
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Takashi Nakayama: Bank of Japan
Naohiko Baba: Bank of Japan
Tatsushi Kurihara: Bank of Japan

Bank of Japan Review Series from Bank of Japan

Abstract: Interest rates on Japanese government bonds (JGBs) fluctuated widely in 2003. The interest rate on 10-year JGBs gradually declined from the beginning of 2003, reaching the mid 0.4% range in June. But then, interest rates rose sharply (i) from late June to early July and (ii) from late August to early September. These fluctuations basically reflected changes in the outlook for Japan's economy. A closer look shows that other factors also influenced the price formation of JGBs during certain periods. They include the synchronized movement of interest rates between Japan and the US, changes in expectations about the Bank of Japan's monetary policy, and the hedging strategy employed by financial institutions, some of which collectively influenced JGB price developments.

Date: 2004-03-10
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