Outlook for Interest Rates and Japanese Banks’ Risk Exposures under Abenomics

October 18, 2013

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Format: Chicago

Serkan Arslanalp, and Waikei R Lam. Outlook for Interest Rates and Japanese Banks’ Risk Exposures under Abenomics, (USA: International Monetary Fund, 2013) accessed December 27, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines how Japan’s long-term interest rates and Japanese banks’ interest rate risk exposures may evolve under Abenomics. Results from a panel regression analysis for major advanced economies shows that long-term government bond yields in Japan are determined to a large extent by growth and inflation outlook, fiscal conditions, demography, and the investor base of government securities. A further deterioration of fiscal conditions would push up long-term rates by about 2 percentage points over the medium term, but the rise is partly offset by higher demand for safe assets amid population aging and increased purchases by the Bank of Japan. At the same time, illustrative scenarios suggest the interest rate risk exposure of Japanese banks could decline substantially over the next two years. However, if structural and fiscal reforms are incomplete, both long-tem yields and interest-risk exposures of Japanese banks could increase over the medium term.

Subject: Banking, Financial regulation and supervision, Financial services, Inflation, Long term interest rates, Macrostructural analysis, Market risk, Prices, Public debt, Structural reforms

Keywords: Abenomics, BoJ asset purchase, Current account, Global, Inflation, Interest rate risks, Japanese government bonds (JGB), JGB financing, JGB holding, JGB market, Long term interest rates, Market risk, Risk exposure, Sovereign yields, Structural reforms, Unconventional monetary policy, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/213
Stock No:

WPIEA2013213
ISBN:

9781484374214
ISSN:

1018-5941

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