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Understanding the Low Yields of the Long-Term Japanese Sovereign Debt

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  • Tanweer Akram
  • Anupam Das

Abstract

During the past two decades, chronic fiscal deficits have led to elevated and rising ratios of government debt to nominal GDP in Japan. Nevertheless, long-term Japanese government bonds' (JGBs) nominal yields initially declined, and have since stayed remarkably low and stable. This is contrary to the received wisdom which holds that higher government deficits and indebtedness will exert upward pressures on nominal yields. This paper examines the relationship between JGBs' nominal yields and short-term interest rates, as well as other factors, such as low inflation, persistent deflationary pressures, and tepid growth. We also argue that Japan has monetary sovereignty, which gives the Japanese government the ability to service its debt, and enables the Bank of Japan (BOJ) to keep JGBs' nominal yields low by ensuring that short-term interest rates are low, and by using various other tools of monetary policy. The argument that short-term interest rates and monetary policy are the primarily drivers of long-term interest rates follows John Maynard Keynes's (1930) insights.

Suggested Citation

  • Tanweer Akram & Anupam Das, 2014. "Understanding the Low Yields of the Long-Term Japanese Sovereign Debt," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(2), pages 331-340.
    • Handle: RePEc:mes:jeciss:v:48:y:2014:i:2:p:331-340
    DOI: 10.2753/JEI0021-3624480206
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    Cited by:

    1. Tanweer Akram & Huiqing Li, 2019. "The Impact of the Bank of Japan's Monetary Policy on Japanese Government Bonds' Low Nominal Yields," Economics Working Paper Archive wp_938, Levy Economics Institute.
    2. Tanweer Akram & Syed Al-Helal Uddin, 2021. "The Empirics of Long-Term Mexican Government Bond Yields," Economics Working Paper Archive wp_984, Levy Economics Institute.
    3. Tanweer Akram & Anupam Das, 2020. "Australian Government Bonds’ Nominal Yields: A Keynesian Perspective," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-20, March.
    4. Tanweer Akram & Anupam Das, 2014. "The Determinants of Long-Term Japanese Government Bonds' Low Nominal Yields," Economics Working Paper Archive wp_818, Levy Economics Institute.
    5. Tanweer Akram, 2019. "Prospects and Risks for the Global Economy in 2019," CPD Working Paper 130, Centre for Policy Dialogue (CPD).
    6. Tanweer Akram, 2016. "Japan's Liquidity Trap," Economics Working Paper Archive wp_862, Levy Economics Institute.
    7. Tanweer Akram, 2020. "A Note Concerning Government Bond Yields," Economics Working Paper Archive wp_977, Levy Economics Institute.
    8. Anupam Das & Tanweer Akram, 2020. "A Keynesian analysis of Canadian government securities yields," PSL Quarterly Review, Economia civile, vol. 73(294), pages 241-260.
    9. Akram, Tanweer & Li, Huiqing, 2017. "What keeps long-term U.S. interest rates so low?," Economic Modelling, Elsevier, vol. 60(C), pages 380-390.
    10. Tanweer Akram, 2015. "The Malady of Low Global Interest Rates," Economics Working Paper Archive wp_852, Levy Economics Institute.
    11. Tanweer Akram, 2021. "A Note Concerning the Dynamics of Government Bond Yields," The American Economist, Sage Publications, vol. 66(2), pages 323-339, October.
    12. Tanweer Akram & Syed Al-Helal Uddin, 2021. "An empirical analysis of long-term Brazilian interest rates," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-20, September.
    13. Tanweer Akram & Huiqing Li, 2018. "The Dynamics of Japanese Government Bonds' Nominal Yields," Economics Working Paper Archive wp_906, Levy Economics Institute.
    14. Yeva Nersisyan & L. Randall Wray, 2021. "Has Japan Been Following Modern Money Theory Without Recognizing It? No! And Yes," Economics Working Paper Archive wp_985, Levy Economics Institute.
    15. Tanweer Akram, 2020. "A Simple Model of the Long-Term Interest Rate," Economics Working Paper Archive wp_951, Levy Economics Institute.
    16. Tanweer Akram & Huiqing Li, 2020. "Some Empirical Models of Japanese Government Bond Yields Using Daily Data," Economics Working Paper Archive wp_962, Levy Economics Institute.
    17. Tanweer Akram & Syed Al-Helal Uddin, 2020. "An Empirical Analysis of Long-Term Brazilian Interest Rates," Economics Working Paper Archive wp_956, Levy Economics Institute.
    18. Tanweer Akram & Anupam Das, 2018. "Australian Government Bonds' Nominal Yields: An Empirical Analysis," Economics Working Paper Archive wp_910, Levy Economics Institute.
    19. Dimitris Malliaropulos & Petros Migiakis, 2018. "Quantitative easing and sovereign bond yields: a global perspective," Working Papers 253, Bank of Greece.
    20. Tanweer Akram & Huiqing Li, 2020. "The Empirics of UK Gilts' Yields," Economics Working Paper Archive wp_969, Levy Economics Institute.

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