JGB Yield Curve and Macro-Financial Stability: ow Would a Steeper JGB Yield Curve Affect Bank Profitability? Japan
Selected Issues Papers, May 18, 2023
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Bibliographic details
- Authors: Salih Fendoglu
- Published: May 18, 2023
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798400244032.018
Summary findings
- Given that there is exceptionally high uncertainty around the domestic inflation outlook, allowing for greater flexibility in long-term Japanese Government Bond (JGB) yields by the Bank of Japan (BoJ) could be considered going forward.
- This study empirically finds that a steeper JGB yield curve helps improve banks’ profitability, especially after a year lag.
- The overall impact of a steeper JGB yield curve hinges on macroeconomic and financial market responses.
- A steeper JGB yield curve could also have spillovers on global yields.
Policy recommendations and financial sector measures
- Consider allowing greater flexibility in long-term JGB yields by the BoJ, given domestic inflation uncertainty.
- Consider financial sector policies to mitigate short-term vulnerabilities in case the JGB yield curve steepens.
- Further strengthen engagement with financial institutions with relatively high exposure to interest rate movements to better harness the benefits in the medium term.
Scope and context
- Subject areas: Bank soundness, Financial sector policy and analysis, Financial services, International organization, Monetary policy, Yield curve.
- Keywords: Bank soundness, Global, JGB yield curve, long-term Japanese Government Bond, macro-Financial stability, Yield curve, yield curve flattening, yield curve slope.
- Author and date: By Salih Fendoglu; May 18, 2023.
Source: IMF Selected Issues Paper — "JGB Yield Curve and Macro-Financial Stability: ow Would a Steeper JGB Yield Curve Affect Bank Profitability? Japan" (Salih Fendoglu, May 18, 2023).
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