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The Impact of Quantitative and Qualitative Easing and Yield Curve Control on the Functioning of the Japanese Government Bond Market

Author

Listed:
  • Noritaka Fukuma

    (Bank of Japan)

  • Tomiyuki Kitamura

    (Bank of Japan)

  • Kohei Maehashi

    (Bank of Japan)

  • Naoki Matsuda

    (Bank of Japan)

  • Keita Takemura

    (Bank of Japan)

  • Kota Watanabe

    (Bank of Japan)

Abstract

This paper examines the impact of the Bank of Japan (BOJ)’s Quantitative and Qualitative Easing (QQE) and Yield Curve Control (YCC) on the functioning of the Japanese government bond (JGB) market using panel data for JGB issues. The main results can be summarized in the following three points. First, regarding the impact on transaction volume in the JGB market, JGB purchases by the BOJ (i.e. increase in flow) increase transaction volume on average, while the BOJ’s increased holdings of JGBs (i.e. increase in stock) and its conduct of continuous fixed-rate purchase operations decrease transaction volume. However, if the BOJ conducts JGB purchases when its share of JGB holdings exceeds a certain threshold, transaction volume will decrease. Second, regarding the impact on bid-ask spreads in the JGB market, while JGB purchases by the BOJ reduce these spreads, the increase in the share of JGBs held by the BOJ will lead to a nonlinear widening of the spreads. Third, regarding the impact on the shape of the yield curve, an increase in the BOJ’s holdings of certain JGB issues and its conduct of continuous fixed-rate purchase operations will lead to a downward distortion in the yield curve.

Suggested Citation

  • Noritaka Fukuma & Tomiyuki Kitamura & Kohei Maehashi & Naoki Matsuda & Keita Takemura & Kota Watanabe, 2024. "The Impact of Quantitative and Qualitative Easing and Yield Curve Control on the Functioning of the Japanese Government Bond Market," Bank of Japan Working Paper Series 24-E-9, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp24e09
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    More about this item

    Keywords

    QQE; YCC; JGB market; market functioning; market liquidity;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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