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Liquidity in JGB markets

- Analysis on the Intraday Bid-Ask Spreads -

Tomoki Tanemura
Yasunari Inamura*
Shinichi Nishioka
Hideaki Hirata
Tokiko Shimizu

  • Bank Examination and Surveillance Department

The views expressed in the Review are those of the authors and do not necessarily represent the views of the Bank of Japan. Comments and questions as well as requests for hard copies should be addressed to Tokiko Shimizu, Deputy Director, Financial Markets Department (

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Liquidity in the Japanese government bond (JGB) market has improved significantly as a result of a series of market reforms implemented since 2000. Market liquidity is a measure of "the level of ease with which trading can be conducted in the market." In order to facilitate trading in the JGB market, or in other words to enhance overall liquidity in the market, it is necessary to have a clear understanding of the changing mechanisms in market liquidity, together with main factors which have an impact on this. Detailed information known as "tick data," which records trading patterns over the course of a day, is a very useful tool when conducting a detailed analysis of market liquidity. Our empirical analysis, based on the intraday bid-ask spread, shows that as is the case in the US Treasury bond market, the longer the remaining maturity, the wider the bid-ask spread. Moreover, we find that wider bid-ask spreads are observed when market prices are volatile. These empirical findings are consistent with the general perception held by market participants.