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Price Developments of Japanese Government Bonds in 2003

Takashi Nakayama
Naohiko Baba
Tatsushi Kurihara

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, Director, Financial Markets Department (

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Interest rates on Japanese government bonds (JGBs) fluctuated widely in 2003. The interest rate on 10-year JGBs gradually declined from the beginning of 2003, reaching the mid 0.4% range in June. But then, interest rates rose sharply (i) from late June to early July and (ii) from late August to early September. These fluctuations basically reflected changes in the outlook for Japan's economy. A closer look shows that other factors also influenced the price formation of JGBs during certain periods. They include the synchronized movement of interest rates between Japan and the US, changes in expectations about the Bank of Japan's monetary policy, and the hedging strategy employed by financial institutions, some of which collectively influenced JGB price developments.