A0300
Title: The pandemic and government bonds: Evidence from volatility smiles in Japan
Authors: Etsuro Shioji - Chuo University (Japan) [presenting]
Abstract: The purpose is to study how the financial market has reacted to the aggressive fiscal and monetary policies that have been implemented since the outbreak of the COVID-19 in Japan. Even before the pandemic, the country's debt to GDP ratio was well over 200\%. The situation has drastically worsened since February 2020. Prices of the JGB futures options are analyzed to measure the policies' influences on private-sector perceptions about the future course of the JGB market. To that end, we derive volatility smiles from those option prices on a daily basis. We study how the location and the shape of the smile curve have responded to the introduction of the new policy measures. Results show that the Bank of Japan's Yield Curve Control (YCC) policy has played a decisive role in stabilizing the JGB market.
