The Impact of Quantitative and Qualitative Easing and Yield Curve Control on the Functioning of the Japanese Government Bond Market

Noritaka Fukuma, Tomiyuki Kitamura, Kohei Maehashi, Naoki Matsuda, Keita Takemura and Kota Watanabe
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Noritaka Fukuma: Bank of Japan
Tomiyuki Kitamura: Bank of Japan
Kohei Maehashi: Bank of Japan
Naoki Matsuda: Bank of Japan
Keita Takemura: Bank of Japan
Kota Watanabe: Bank of Japan

No 24-E-9, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper examines the impact of the Bank of Japan (BOJ)’s Quantitative and Qualitative Easing (QQE) and Yield Curve Control (YCC) on the functioning of the Japanese government bond (JGB) market using panel data for JGB issues. The main results can be summarized in the following three points. First, regarding the impact on transaction volume in the JGB market, JGB purchases by the BOJ (i.e. increase in flow) increase transaction volume on average, while the BOJ’s increased holdings of JGBs (i.e. increase in stock) and its conduct of continuous fixed-rate purchase operations decrease transaction volume. However, if the BOJ conducts JGB purchases when its share of JGB holdings exceeds a certain threshold, transaction volume will decrease. Second, regarding the impact on bid-ask spreads in the JGB market, while JGB purchases by the BOJ reduce these spreads, the increase in the share of JGBs held by the BOJ will lead to a nonlinear widening of the spreads. Third, regarding the impact on the shape of the yield curve, an increase in the BOJ’s holdings of certain JGB issues and its conduct of continuous fixed-rate purchase operations will lead to a downward distortion in the yield curve.

Keywords: QQE; YCC; JGB market; market functioning; market liquidity (search for similar items in EconPapers)
JEL-codes: C23 D4 D53 E58 G12 (search for similar items in EconPapers)
Date: 2024-08-30
New Economics Papers: this item is included in nep-cba and nep-mon
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