Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing

August 3, 2015

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

Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.

Subject: Bank credit, Banking, Expenditure, Financial institutions, Insurance companies, Monetary policy, Money, Pension spending, Securities, Unconventional monetary policies

Keywords: Asia and Pacific, asset, bank, Bank credit, BoJ buying, BoJ communication, BoJ purchase, capital outflows, Global, institutional investor, Insurance companies, Japanese Government bond, JGB Holdings, JGB market, market, net JGB purchase, Pension spending, portfolio rebalancing, quantitative easing, quantitative easing policy, reserve injection, Securities, Southeast Asia, speed limits, Unconventional monetary policies, WP

Pages:
22
Volume:
2015
DOI:
https://doi.org/10.5089/9781513557595.001
Issue:
186
Series:
Working Paper No. 2015/186
Stock No:
WPIEA2015186
ISBN:
9781513557595
ISSN:
1018-5941

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