Assessing the Risks to the Japanese Government Bond (JGB) Market
IMF Working Papers, December 1, 2011
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- Assessing the Risks to the Japanese Government Bond (JGB) Market
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Bibliographic details
- Authors: Waikei R Lam, Kiichi Tokuoka
- Published: December 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463927264.001
Overview / Main findings
- Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable.
- Factors supporting low and stable JGB yields:
- steady inflows from the household and corporate sectors
- high domestic ownership of JGBs
- safe-haven flows from heightened sovereign risks in Europe
- Over time, the market's capacity to absorb new debt will likely shrink as population ages and risk appetite recovers.
Short-term risks
- A decline in fund supply from the corporate sector, where financial surpluses are abnormally high, could push up JGB yields.
- Spillovers from global financial distress could push up JGB yields.
Long-term risks and structural pressures
- Population aging is expected to reduce the market's capacity to absorb new debt.
- Recovery in risk appetite (relative to current safe-haven conditions) would reduce demand pressures that have supported low JGB yields.
Policy recommendations and mitigation measures
- Fiscal reforms to reduce public debt more quickly.
- Lengthening the maturity of government bonds to help limit JGB market risks.
Subject areas and keywords
- Subject: Banking, Corporate sector, Credit default swap, Economic sectors, Financial institutions, Government securities, Loans, Money, Public debt
- Keywords: Corporate sector, Credit default swap, Financial Distress, Fiscal Sustainability, Global, Government securities, Government yields, JGB cash market, JGB CDS contract, JGB holding, JGB market, JGB sell-off, JGB yield, Loans, maturity JGBS, Sovereign Risk, WP, yield
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