Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing
IMF Working Papers, August 3, 2015
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- Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing
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Bibliographic details
- Authors: Serkan Arslanalp, Dennis P Botman
- Published: August 3, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513557595.001
Summary of key findings
- Portfolio rebalancing is identified as a key transmission channel of quantitative easing in Japan.
- A constructed realistic rebalancing scenario suggests that the Bank of Japan (BoJ) may need to taper its JGB purchases in 2017 or 2018, given:
- collateral needs of banks,
- asset-liability management constraints of insurers,
- announced asset allocation targets of major pension funds.
- Despite these constraints, the BoJ could continue to deliver monetary stimulus by:
- extending the maturity of its JGB purchases, or
- scaling up private asset purchases.
- The paper quantifies the impact of rebalancing on capital outflows and discusses JGB market signals that can indicate when limits are within reach.
Quantitative projections and scenarios
- Timing projection: tapering of JGB purchases may be required in 2017 or 2018.
- The study constructs a "realistic rebalancing scenario" (details in the paper) that leads to the above timing implication.
- The paper quantifies the effect of portfolio rebalancing on capital outflows (quantitative details available in the full working paper).
Policy implications and recommendations
- If portfolio rebalancing limits are approached, the BoJ can:
- taper net JGB purchases, and/or
- extend the maturity composition of JGB purchases to maintain stimulus effectiveness, and/or
- scale up purchases of private assets to sustain monetary accommodation.
- Monitor JGB market signals as indicators that portfolio rebalancing limits may be within reach.
Institutional and market constraints examined
- Collateral needs of banks.
- Asset-liability management constraints of insurers.
- Announced asset allocation targets of major pension funds.
- Implications for capital outflows from portfolio rebalancing dynamics.
Publication metadata and access
- Authors: Serkan Arslanalp, Dennis P Botman
- Date: August 3, 2015
- Series: IMF Working Papers, Working Paper No. 2015/186
- Pages: 22
- DOI: https://doi.org/10.5089/9781513557595.001
IMF Working Paper: "Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing", Serkan Arslanalp and Dennis P Botman, August 3, 2015.