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Saving-Investment Balance and Fiscal Sustainability of Japan: A View from the JGB Market

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  • Iwaisako, Tokuo

Abstract

This paper provides an overview of the sustainability of Japan’s government debt, emphasizing the viewpoint of market participants in the Japanese government bonds (JGB) market. The Japanese government will be able to finance its debt as long as current surpluses continue, meaning there is sufficient domestic demand for JGB. Looking at domestic investors’ portfolio choices, both life insurance companies and pension funds are increasing their holdings of long-term government bonds to match the maturities of their assets and their payments to households. Japanese banks, on the other hand, are increasing their holdings of short-term government debt, almost proportionally to the increase in their deposits. However, there is substantial heterogeneity in portfolio choice. Three megabank groups (Mitsubishi-Tokyo-UFJ, Mizuho, Sumitomo-Mitsui) and large regional banks have decreased their portfolio weights of JGB recently. Smaller banks specializing in small-firm lending and agricultural lending as well as Japan Post Bank (Yu-cho) have increased the proportion of government debt in their portfolios. Hence, potential losses in their portfolios, once the JGB yield starts to increase, are much higher with the latter group of financial institutions.

Suggested Citation

  • Iwaisako, Tokuo, 2012. "Saving-Investment Balance and Fiscal Sustainability of Japan: A View from the JGB Market," Discussion Paper Series 568, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:568
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/22954/DP568.pdf
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    References listed on IDEAS

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    1. Teppei Nagano & Eiko Ooka & Naohiko Baba, 2007. "Arbitrage Activities between Offshore and Domestic Yen Money Markets since the End of the Quantitative Easing Policy," Bank of Japan Review Series 07-E-2, Bank of Japan.
    2. Takero Doi & Takeo Hoshi, 2003. "Paying for the FILP," NBER Chapters, in: Structural Impediments to Growth in Japan, pages 37-70, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Naoyuki Yoshino & Uwe Vollmer, 2014. "The sovereign debt crisis: why Greece, but not Japan?," Asia Europe Journal, Springer, vol. 12(3), pages 325-344, September.

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