Outlook for Interest Rates and Japanese Banks’ Risk Exposures under Abenomics

 
Author/Editor: Serkan Arslanalp ; Raphael W. Lam
 
Publication Date: October 18, 2013
 
Electronic Access: Free Full text (PDF file size is 797KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper examines how Japan’s long-term interest rates and Japanese banks’ interest rate risk exposures may evolve under Abenomics. Results from a panel regression analysis for major advanced economies shows that long-term government bond yields in Japan are determined to a large extent by growth and inflation outlook, fiscal conditions, demography, and the investor base of government securities. A further deterioration of fiscal conditions would push up long-term rates by about 2 percentage points over the medium term, but the rise is partly offset by higher demand for safe assets amid population aging and increased purchases by the Bank of Japan. At the same time, illustrative scenarios suggest the interest rate risk exposure of Japanese banks could decline substantially over the next two years. However, if structural and fiscal reforms are incomplete, both long-tem yields and interest-risk exposures of Japanese banks could increase over the medium term.
 
Series: Working Paper No. 13/213
Subject(s): Interest rates | Japan | Banks | Risk premium | Fiscal reforms | Monetary policy

 
English
Publication Date: October 18, 2013
ISBN/ISSN: 9781484374214/2227-8885 Format: Paper
Stock No: WPIEA2013213 Pages: 26
Price:
US$18.00
 
 
Please address any questions about this title to publications@imf.org