CIRJE-F-1062 "On the Effect of Bank of Japan's Outright Purchase on the JGB Yield Curve"
Author Name

Nakano, Masafumi, Akihiko Takahashi, Soichiro Takahashi and Takami Tokioka

Date August 2017
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Revised in September 2017, November 2017 and January 2018; forthcoming in Asia-Pacific Financial Markets


This paper examines an impact of Bank of Japan (BOJ)’s outright purchase on the JGB (Japanese government bond) 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(QQE) 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.