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Liquidity in the JGB Cash Market: An Evaluation from Detailed Transaction Data

March 29, 2018
Toshiyuki Sakiyama*1
Shun Kobayashi*2
Financial Markets Department
Bank of Japan


The Bank of Japan releases "Liquidity Indicators in the JGB Markets" consisting of several indicators each quarter, as part of monitoring liquidity in the JGB markets. In particular, for the JGB futures market, the Bank examines in detail market liquidity including liquidity during the day by creating indicators based on individual transaction data called detailed transaction data.

In this study, we attempt to expand liquidity indicators for the JGB cash market since it is increasingly necessary to grasp liquidity in the JGB markets in more detail. Specifically, by utilizing newly acquired detailed transaction data of inter-dealer transactions, we compiled some indicators that enable us to get a grasp of intraday market liquidity of all JGB issues.

Examining new liquidity indicators suggests that, as a whole, indicators have gradually improved since the fall of 2016, after considerably worsening at the beginning of 2016. Considering price and volume of orders, this suggests that it is easier to trade now than it was following the introduction of "QQE with a Negative Interest Rate." However, we must continue to pay attention to future development of market liquidity because transaction volume has not increased while some indicators have improved. In addition, we find that improvement of short-term and off-the-run bonds is relatively delayed and observe situations where market liquidity temporarily worsens within a day. These points are consistent with market participants' views.

Based on the above consideration, it is useful to examine liquidity in the JGB markets, using the newly compiled indicators in this paper. Since market liquidity cannot be grasped by quantitative indicators alone, it is important to continue to check market liquidity from a multifaceted perspective such as by capturing the viewpoint of market participants through surveys, meetings, etc.

We would like to thank the staff of the Bank of Japan for their helpful comments. The opinions expressed here as well as any remaining errors are those of the authors and should not be ascribed to the Bank of Japan. This paper is an English translation of the original Japanese released on March 19, 2018.

  1. *1Financial Markets Department, Bank of Japan
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  2. *2Financial Markets Department, Bank of Japan
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