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Do fiscal policy news shocks affect JGB yield? Evidence from COVID-19

Author

Listed:
  • Takahiro Hattori

    (Corresponding author. Project Assistant Professor, University of Tokyo and Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan)

  • Motoki Katano

    (Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan)

Abstract

This is a pioneering study that investigates how fiscal news affects the yield of the Japanese Government Bond (JGB), by using intraday data. Since the Japanese government is the largest spender in the world, during the COVID-19 pandemic, this period provides the ideal situation or setting to test how fiscal news affects JGB yield. Taking advantage of the minute by minute data about fiscal news during this pandemic, we find that negative fiscal news significantly but temporarily increased JGB yield, although it is not a persistent effect. We also find that investors do care about negative news but not about the positive news. These results suggest that the JGB is considered a risk-free asset among investors, but the result also signals to the Japanese government to work on sound management of debt sustainability from a long-term perspective.

Suggested Citation

  • Takahiro Hattori & Motoki Katano, 2020. "Do fiscal policy news shocks affect JGB yield? Evidence from COVID-19," Discussion papers ron334, Policy Research Institute, Ministry of Finance Japan.
    • Handle: RePEc:mof:wpaper:ron334
    as

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    File URL: https://www.mof.go.jp/pri/research/discussion_paper/ron334.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Budget Deficit; Japanese Government Bond; Interest Rate; Fiscal News; COVID-19;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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