Using our constructed database on the amount outstanding of Japanese Government Bonds (JGBs) categorized by holder and remaining maturity, we examine the effects of changes in the holders and maturity structures on the term structure of interest rates and the risk premium on long-term bonds. Both approaches using single-equation regressions and a term structure model confirm that the net supply of JGBs, the issuance (supply) by the government minus the demand by the preferred-habitat investors including the Bank of Japan (BOJ), had significant effects on long-term interest rates. The regression approach implies that the net supply effects were stronger in the zero interest rate periods, while this relationship was not found using the model approach. We also calculate the net supply effects of the BOJ’s JGB purchases as part of its Quantitative and Qualitative Monetary Easing and compare the results with those obtained from a simple event-study analysis.
Keywords: Japanese Government Bonds; Term structure of interest rates; Preferred habitat; Unconventional monetary policy
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.