A0530
Title: Is the market for the Japanese government bonds still insulated from external forces?
Authors: Etsuro Shioji - Chuo University (Japan) [presenting]
Abstract: The purpose is to examine whether the market for Japanese government bonds (JGBs) is becoming integrated with the global financial market. Historically, the market has been dominated by domestic players, who often hold on to the bonds due to institutional or regulatory considerations. This tendency has effectively insulated it from external pressures. However, with the increasing presence of foreign investors, who may not hesitate to dump the bonds as they see fit, the market may be becoming more susceptible to events in external financial markets. Investigating this issue is complicated by the yield curve control (YCC) policy implemented by the Bank of Japan (BOJ) between 2016 and 2024. Under this policy, the BOJ actively intervened to stabilize yields, thereby suppressing much of their reaction to outside shocks. The aim is to address this challenge by employing an improved version of the bond market pressure index, which was developed in another study. This approach is based on the premise that, under the YCC regime, market pressures would manifest themselves in the amounts of intervention conducted by the BOJ. It is estimated how the index has responded to external shocks such as US monetary policy, and it is examined whether the reaction has strengthened over time.
