Developments in the Functioning of the JGB Markets from the Perspective of the Usage of the Securities Lending Facility
March 21, 2025
IDE Joji, MASUDA Tomoaki, TAKAHASHI Masato
Financial Markets Department
Abstract
The Bank of Japan provides a temporary and secondary source of Japanese Government Bonds (JGBs) to market participants under its Securities Lending Facility (SLF) in its efforts to improve liquidity in the JGB markets and to maintain smooth market functioning. Borrowing from the SLF surged at the beginning of 2023, when liquidity in the JGB markets declined significantly, due to massive selling pressure on JGBs reflecting speculation over the termination of Yield Curve Control and to the subsequent large-scale JGB purchases by the Bank, and remained elevated before starting to decline in mid-2024. The recent decline in borrowing from the SLF is considered to have been driven by the gradual improvement in the functioning of the JGB markets, including the cash, futures, and repo markets, reflecting the reduction in JGB purchases by the Bank and the stabilization of the repo rates as well as changes in investors' positions. Nevertheless, the SLF continues to underpin liquidity in the JGB markets, as there remain a number of JGB issues, in particular 10-year off-the-run issues, of which the Bank holds a significant share. The Bank will continue to closely monitor the functioning of the JGB markets as reflected in the usage of the SLF.
Notice
The Bank of Japan Review Series is published by the Bank to explain recent economic and financial topics for a wide range of readers. This report, 2025-E-3, is a translation of the Japanese original, 2025-J-1, published in March 2025. Views expressed are those of the authors and do not necessarily reflect those of the Bank. If you have any comments or questions, please contact Financial Markets Department (E-mail: post.fmd7@boj.or.jp).