Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing

Serkan Arslanalp and Dennis Botman

No 2015/186, IMF Working Papers from International Monetary Fund

Abstract: Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.

Keywords: WP; market; asset; bank; institutional investor; Japanese Government bond; quantitative easing; portfolio rebalancing; capital outflows; speed limits; net JGB purchase; quantitative easing policy; JGB Holdings; BoJ buying; BoJ purchase; reserve injection; BoJ communication; JGB market; Pension spending; Insurance companies; Bank credit; Securities; Unconventional monetary policies; Global; Southeast Asia; Asia and Pacific (search for similar items in EconPapers)
Pages: 22
Date: 2015-08-03
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Citations: View citations in EconPapers (10)

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