Do fiscal policy news shocks affect JGB yield? Evidence from COVID-19

Takahiro Hattori and Motoki Katano
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Takahiro Hattori: Corresponding author. Project Assistant Professor, University of Tokyo and Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan
Motoki Katano: Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan

Discussion papers from Policy Research Institute, Ministry of Finance Japan

Abstract: This is a pioneering study that investigates how fiscal news affects the yield of the Japanese Government Bond (JGB), by using intraday data. Since the Japanese government is the largest spender in the world, during the COVID-19 pandemic, this period provides the ideal situation or setting to test how fiscal news affects JGB yield. Taking advantage of the minute by minute data about fiscal news during this pandemic, we find that negative fiscal news significantly but temporarily increased JGB yield, although it is not a persistent effect. We also find that investors do care about negative news but not about the positive news. These results suggest that the JGB is considered a risk-free asset among investors, but the result also signals to the Japanese government to work on sound management of debt sustainability from a long-term perspective.

Keywords: Budget Deficit; Japanese Government Bond; Interest Rate; Fiscal News; COVID-19 (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-12
New Economics Papers: this item is included in nep-mac
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https://www.mof.go.jp/pri/research/discussion_paper/ron334.pdf First version, 2016 (application/pdf)

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