Japan: Decline in JGB market liquidity serious? – Nomura

BOJ has endeavoured to support liquidity in the JGB market in every way it possibly can after introducing quantitative and qualitative easing (QQE), including expansion of its JGB purchases, in April 2013, points out Takahide Kiuchi, Executive Economist at Nomura.

Key Quotes

“While the BOJ’s policy has yet to lead to any serious turmoil in JGB market transactions, the central bank’s recent Bond Market Survey of market participants indicates a considerable decline in the market’s functionality and liquidity. The declines are likely attributable to the BOJ’s introduction of its negative interest rate policy (NIRP) and yield curve control (YCC), and the avoidance of any major turmoil appears due to market participants suppressing their transaction volumes.”

“This market environment, however, has participants concerned that an unexpected shock could sharply escalate volatility and deliver a big blow to the stability of financial markets and the economy. While its policies have yet to cause a major disturbance in bond market transactions, the BOJ must not let down its guard and should redirect its monetary policy with the aim of improving JGB market liquidity.”