Preestablished harmony: The Japanese government's demand for Japanese government bonds

Kazuki Onji, Keigo Kameda, Nobuo Akai

    Research output: Contribution to journalArticle


    The Japanese government is heavily indebted but the yield on the Japanese government bond (JBG) remains low to date. We hypothesize that the presence of the Japanese government as a large stable investor of JGBs exerted a stabilizing influence on private JGB traders and thus rendered the risk premium for sovereign default negligible. To identify the influence of a large stable JGB holder, we utilize a surprise change in the policy stance toward public debt holding as a quasi-experiment. We estimated a VARMA model using daily data and found that an announced government withdrawal led to a 50-basis-point increase in the yields of 10-year JGBs. Our study suggests that large public debt holding reduces the risk premium and is one factor behind the low yield.
    Original languageEnglish
    Pages (from-to)207-214
    JournalJapan and the World Economy
    Issue number3
    Publication statusPublished - 2012


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