Japan Avg. Duration of JGBs

Since 2008, the Japanese government has been extending the duration of JGBs.

Published monthly by Japan Macro Advisors. Updated to the month of September 2019 (published on October 16th, 2018)

Recent data trend:

The average duration of JGBs was extended from 4.9 years as of January 2008 to 8.37 years as of September 2019. In terms of the time to maturity, it was extended from 6.2 years as of January 2008 to 9.2 years as of September 2019. This duration extension was supported by the generally strong demand for JGBs in the aftermath of the great recession between 2008-09 as well as the appetite on the part of life insurance companies in Japan to extend the duration of their assets to match the duration of their liabilities. BoJ has continued providing support to the JGB market, keeping the yield curve low and flat, even with a recent reduction in the size of JGB purchases to around 40 trillion yen per year as regards, 80 trillion yen earlier.

Having said that, Japanese government's effort to extend the duration of liability is greatly undermined by the BoJ's JGB purchase. The BoJ is effectively issuing zero duration cash in exchange of JGBs. While yen cash does not need to be redeemed in a traditional sense, it does need to be exchanged into other hard currencies such as USD or Euro so long as Japan wishes to maintain the hard currency status of the Japanese yen. This point is often neglected in the general discussion of Japan's fiscal fragility, but it is nevertheless quite important, in our view.

Brief overview of "Avg Duration of JGBs"

We, Japan Macro Advisors, publish our monthly duration estimates for Japanese government bond (JGB) as well as Japanese government securities (JGS=JGB + TB). The Ministry of Finance does publish the average time to maturity of JGB in their quarterly newsletter series, but the definition is slightly incorrect. It only covers General Bond portion of the JGB, leaving out the FILP Bonds that account for 15% of the total JGBs. It also does not publish the duration information on TBs. Lastly, there is a time lag. As of July 31, 2013, the latest quarterly newsletter is that of April issue, and it provides the duration information as of December 2012. We aim to supplement these shortcomings in frequency, coverage, and timeliness. Our estimates start from 2008, and our estimates tend to have 3 months lag to real time.

The methodology and publication schedule of the indicator

The Next Release Date: November 4th, 2019.

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