Yield curve of Treasury Bills in Japan under different regimes of non‐traditional monetary policy

• Published date: 01 July 2023
• Author: Takayasu Ito
• Date: 01 July 2023
• DOI: http://doi.org/10.1002/jcaf.22628

Received: 14 February2023Accepted: 10 March 2023

DOI: 10.1002/jcaf.22628

RESEARCH ARTICLE

Yield curve of Treasury Bills in Japan under different

regimes of non-traditional monetary policy

Takayasu Ito

School of Commerce, Meiji University,

Chiyoda-ku, Tokyo,Japan

Correspondence

TakayasuIto, School of Commerce, Meiji

University, Chiyoda-ku, Tokyo 101-8301,

Japan.

Email: tito747@meiji.ac.jp

Funding information

Japan Society for the Promotion of

Science, Grant/AwardNumber: 21K01569

Abstract

When the BOJ (Bank of Japan) adopted a “quantitative and qualitative easing

policy,” zero bound restriction existed. The notion of market practitioners that

the BOJ would not adopt a “negative interest rate policy” caused less volatility in

the TB (Treasury Bill) marketin comparison with a regime of a “negative interest

rate policy.”After the BOJ decided to adopt a “negative interest rate policy,” zero

bound restriction was lifted, and market practitioners expected that the policy

rate decided by the BOJ might be lowered. This expectation gave room for TB

yields to fluctuate more than before, and caused more volatility in the TB market

under the regime of a “negative interest rate policy” than under one of a “quan-

titative and qualitative easing policy.” This is why the TB yield curve under a

“negative interest rate policy” is driven by a single common trend with mutual

causalities in all maturities. In other words, the normal transmission function of

the TB yield curve is recovered by the introduction of a “negative interest rate

policy.”

KEYWORDS

negative interest rate, quantitative and qualitative easing, TreasuryBill, yield curve

JEL CLASSIFICATION

E43, G12

1 INTRODCUTION

The BOJ (Bank of Japan) adopted a “quantitative and

qualitative easing policy” during the period from April

4, 2013 to January 28, 2016, as mentioned by the BOJ

(2013). The pillars of a “quantitative and qualitative eas-

ing policy” are as follows: (1) The adoption of monetary

base control, (2) An increase in JGB (Japanese Govern-

ment Bond) purchases and their maturity, (3) An increase

in ETF (Exchange Traded Fund) and J-REIT (Real Estate

Investment Fund) purchases, (4) A continuation of quanti-

tative and qualitative monetary easing to achieve the price

stability target of 2%.

The BOJ adopted a “negative interest rate policy” from

January 29, 2016. This policy is not referred in the clas-

sification proposed by Bernanke and Reinhart (2004).

Denmark’s central bank introduced the first “negative

interest rate policy” in the world on July 5, 2012. Accord-

ing to the BOJ (2016), “they apply a negative interest rate of

minus 0.1% to the policy-rate balances in current accounts

held by financial institutions at the Bank. They purchase

JGBs so that 10-year JGB yield remains more or less at the

current level (around zero percent).”

This paper analyzes the yield curve of TBs (Treasury

Bills) under different regimes of non-traditional monetary

policy in Japan. It refers to “a quantitative and qualitative

J Corp Account Finance. 2023;34:337–342. © 2023 Wiley PeriodicalsLLC.337wileyonlinelibrary.com/journal/jcaf