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Portfolio Rebalancing Following the Bank of Japan's Government Bond Purchases: Empirical Analysis Using Data on Bank Loans and Investment Flows

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  • Masashi Saito

    (Bank of Japan)

  • Yoshihiko Hogen

    (Bank of Japan)

Abstract

This paper organizes facts and conducts an empirical analysis related to the portfolio rebalancing effect of government bond purchases by the Bank of Japan (BOJ). Our analysis uses data on bank loans and investment flows that are classified by type of entity, primarily taken from the Flow of Funds Accounts Statistics. Following the introduction of Quantitative and Qualitative Monetary Easing (QQE) by the BOJ in April 2013, entities other than the BOJ, as a group, have increased loans and investment in equities, mutual funds, and corporate bonds in Japan, while reducing their holdings of Japanese government bonds. Such portfolio rebalancing is mainly led by domestic banks and nonresidents. Meanwhile, so far, insurance companies, corporate pension funds, and public pensions have not reduced government bond holdings when the BOJ purchased government bonds. In addition to changes in financial and economic conditions, such as the balance sheet conditions of domestic banks and loan demand faced by domestic banks, purchases of government bonds with a longer remaining maturity by the BOJ have played a role in the increase in bank loans observed during the QQE period.

Suggested Citation

  • Masashi Saito & Yoshihiko Hogen, 2014. "Portfolio Rebalancing Following the Bank of Japan's Government Bond Purchases: Empirical Analysis Using Data on Bank Loans and Investment Flows," Bank of Japan Research Papers 14-06-19, Bank of Japan.
    • Handle: RePEc:boj:bojron:ron140619a
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    Cited by:

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    2. Ichiro Fukunaga & Naoya Kato & Junko Koeda, 2015. "Maturity Structure and Supply Factors in Japanese Government Bond Markets," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 33, pages 45-96, November.
    3. Mr. Serkan Arslanalp & Mr. Dennis P Botman, 2015. "Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing," IMF Working Papers 2015/186, International Monetary Fund.
    4. Michael A.S. Joyce & Zhuoshi Liu & Ian Tonks, 2017. "Institutional Investors and the QE Portfolio Balance Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(6), pages 1225-1246, September.
    5. Koijen, Ralph S.J. & Koulischer, François & Nguyen, Benoît & Yogo, Motohiro, 2021. "Inspecting the mechanism of quantitative easing in the euro area," Journal of Financial Economics, Elsevier, vol. 140(1), pages 1-20.
    6. Kenji Suganuma & Yoichi Ueno, 2018. "The Effects of the Bank of Japan's Corporate and Government Bond Purchases on Credit Spreads," IMES Discussion Paper Series 18-E-04, Institute for Monetary and Economic Studies, Bank of Japan.
    7. repec:wsr:wpaper:y:2016:i:168 is not listed on IDEAS
    8. Tatsuki Okamoto & Yoichi Matsubayashi, 2017. "Empirical Evidence from a Japanese Lending Survey within the TVP-VAR Framework: Does the Credit Channel Matter for Monetary Policy?," Discussion Papers 1709, Graduate School of Economics, Kobe University.
    9. Dunne, Peter & Everett, Mary & Stuart, Rebecca, 2015. "The Expanded Asset Purchase Programme – What, Why and How of Euro Area QE," Quarterly Bulletin Articles, Central Bank of Ireland, pages 61-71, July.
    10. Cenedese, Gino & Elard, Ilaf, 2021. "Unconventional monetary policy and the portfolio choice of international mutual funds," Journal of International Money and Finance, Elsevier, vol. 115(C).
    11. Bank for International Settlements, 2019. "Unconventional monetary policy tools: a cross-country analysis," CGFS Papers, Bank for International Settlements, number 63, October –.
    12. Lojschova, Adriana, 2017. "Did quantitative easing boost bank lending? The Slovak experience," MPRA Paper 79567, University Library of Munich, Germany.
    13. Rafael Cezar & Maéva Silvestrini, 2018. "Impact of the ECB Quantitative Easing on the French International Investment Position," Working papers 701, Banque de France.
    14. Martijn Boermans & Robert Vermeulen, 2018. "Quantitative easing and preferred habitat investors in the euro area bond market," DNB Working Papers 586, Netherlands Central Bank, Research Department.
    15. Stefan Avdjiev & Mary Everett & Hyun Song Shin, 2019. "Following the imprint of the ECB's asset purchase programme on global bond and deposit flows," BIS Quarterly Review, Bank for International Settlements, March.
    16. Wang, Ling, 2023. "Central bank asset purchases, banks’ risky security holdings and profitability: Macro and micro evidence from Japan and the U.S," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 347-364.

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    More about this item

    Keywords

    portfolio rebalancing; government bond purchases; Quantitative and Qualitative Monetary Easing (QQE); Flow of Funds Accounts Statistics;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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