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Market Functioning in the Japanese Corporate Bond Market


June 17, 2024
Kaori Ochi*1
Mitsuhiro Osada*2


We construct a new composite index that comprehensively reflects the functioning of Japanese corporate bond markets, the Corporate Bond Market Functioning Index (CBMFI), by aggregating various price-, volume-, and trading environment-related measures of corporate bond market functioning in both primary and secondary markets, following Boyarchenko et al. [2022b]. The CBMFI shows the following. First, in the midst of the Global Financial Crisis from 2008 to 2009 and the period of global monetary tightening from 2022 to 2023, the index fell sharply as the functioning of bond markets deteriorated. The empirical results on the reasons for this decline suggest that, in addition to domestic factors, the tightening of foreign financial conditions had an impact by leading to a deterioration in investors' risk sentiment. Second, while the CBMFI has remained relatively stable in the period since 2013, sub-indexes for the primary and secondary markets show somewhat different developments. This partly reflects the fact that the large-scale monetary easing by the Bank of Japan, including outright purchases of corporate bonds, improved market functioning, especially in the primary market. Third, in terms of the link to the real economy, an improvement in the functioning of the corporate bond market has a positive effect on the real economy through an increase in business fixed investment. The empirical results suggest that the functioning of the primary market is especially important, as it directly affects firms' funding conditions. The CBMFI constructed in this paper proves to be a useful indicator for assessing the functioning of corporate bond markets in a comprehensive and timely manner as one of the transmission channels of monetary policy.

JEL classification
G12, E44, E58

Corporate bond markets, market functioning, corporate finance, business fixed investment, asset purchase

The authors thank Ichiro Fukunaga, Daisuke Ikeda, Sohei Kaihatsu, Kohei Maehashi, Yuji Maruo, Shinichiro Nagae, Teppei Nagano, Jouchi Nakajima, Seiichi Shimizu, Yoichi Ueno, and Kento Yoshizawa for their helpful comments on this paper. Any remaining errors are the authors' own. The views expressed in this paper are those of the authors and do not necessarily represent those of the Bank of Japan.

  1. *1Monetary Affairs Department, Bank of Japan
    E-mail :
  2. *2Monetary Affairs Department, Bank of Japan
    E-mail :


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