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The Impact of Quantitative and Qualitative Easing and Yield Curve Control on the Functioning of the Japanese Government Bond Market

日本語

August 30, 2024
Noritaka FUKUMA*1
Tomiyuki KITAMURA*2
Kohei MAEHASHI*3
Naoki MATSUDA*4
Keita TAKEMURA*5
Kota WATANABE*6

Abstract

This paper examines the impact of the Bank of Japan (BOJ)'s Quantitative and Qualitative Easing (QQE) and Yield Curve Control (YCC) on the functioning of the Japanese government bond (JGB) market using panel data for JGB issues. The main results can be summarized in the following three points. First, regarding the impact on transaction volume in the JGB market, JGB purchases by the BOJ (i.e. increase in flow) increase transaction volume on average, while the BOJ's increased holdings of JGBs (i.e. increase in stock) and its conduct of continuous fixed-rate purchase operations decrease transaction volume. However, if the BOJ conducts JGB purchases when its share of JGB holdings exceeds a certain threshold, transaction volume will decrease. Second, regarding the impact on bid-ask spreads in the JGB market, while JGB purchases by the BOJ reduce these spreads, the increase in the share of JGBs held by the BOJ will lead to a nonlinear widening of the spreads. Third, regarding the impact on the shape of the yield curve, an increase in the BOJ's holdings of certain JGB issues and its conduct of continuous fixed-rate purchase operations will lead to a downward distortion in the yield curve.

JEL classification
C23, D4, D53, E58, G12

Keywords
QQE, YCC, JGB market, market functioning, market liquidity

This paper is based partly on the content of a presentation at the first session (on financial markets) of the first workshop for the Review of Monetary Policy from a Broad Perspective, titled "The Effects and Side Effects of Unconventional Monetary Policy," held on December 4, 2023. In writing this paper, we received valuable comments from Masuhiro Awai, Alexander Duering, Kenji Fujita, Kentaro Iwatsubo, Sohei Kaihatsu, Izuru Kato, Takuji Kawamoto, Taiki Kubo, Yoshiyuki Kurachi, Daisuke Miyakawa, Teppei Nagano, Takashi Nagahata, Seiichi Shimizu, and BOJ staff members. We also received help from Fumiko Muramoto in preparing the figures. We would like to express our deep appreciation to everyone for their assistance. However, any errors in this paper are those of the authors themselves. Additionally, the views expressed herein are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Financial Markets Department
    E-mail : noritaka.fukuma@boj.or.jp
  2. *2Financial Markets Department
    E-mail : tomiyuki.kitamura@boj.or.jp
  3. *3Corresponding author, Financial Markets Department
    E-mail : kouhei.maehashi@boj.or.jp
  4. *4Financial Markets Department (currently, Secretariat of the Policy Board)
    E-mail : naoki.matsuda@boj.or.jp
  5. *5Financial Markets Department (currently, Financial System and Bank Examination Department)
    E-mail : keita.takemura@boj.or.jp
  6. *6Financial Markets Department (currently, Research and Statistics Department)
    E-mail : kouta.watanabe@boj.or.jp