Estimating the duration of JGBs held by BoJ

We are happy to announce that we are starting to publish our estimates on the average duration of JGBs held by the Bank of Japan. We are also publishing the same statistics for the bank’s monthly JGB purchases. We believe this information is essential to assess the effectiveness of, as well as the risk from, the BoJ’s Quantitative Easing (QE) policy under its new governor Haruhiko Kuroda. For the latest figures as well as links to methodology, recent comment, please see here. 

QE policy works through absorption of duration risk from the private sector
The following quote from the governor in a recent speech illustrates the importance of our statistics, “the central banks' purchases of government bonds and other assets from the markets have the effect of encouraging further declines in long-term interest rates and lowering risk premium of asset prices by absorbing risks - such as the one stemming from interest rate fluctuations”. Haruhiko Kuroda, April 12

With the statistics we are publishing, one can measure how much interest rate risk the BoJ is absorbing from the market.

The following chart shows how the average duration of JGBs held by the BoJ has changed in the last few years. It is interesting to note that the average duration was declining rapidly even as the bank was increasing the size of its JGB holding. It means that whatever the easing effect the BoJ was expecting from its balance sheet expansion between 2011 to early 2013, was not through absorption of duration risks from the market.    

Average duration started to rise with the advent of Kuroda easing

Source: BoJ, JMA

For the methodology and the publication schedule of our estimate, please see here. We hope this addition of the statistics onto the public domain will lead to a better understanding and a livelier debate of the monetary policy in Japan.