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Associate Director-General Center for Monetary Cooperation in Asia(CeMCoA) International Department Bank of Japan Shinobu Nakagawa % J-85 J-86 J-87 J-88 J-89 J-90 J-91 J-92 J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-08 F-08 M-08 A-08 M-08 J-08 J-08 A-08 S-08 O-08 N-08 D-08 J-09 F-09 M-09 A-09 M-09 J-09 J-09 A-09 S-09 O-09 N-09 D-09 10 12 0 1 2 3 4 5 8 0 2 4 6 Determinants of long-term interest rate 3
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Long-term Interest Rate in Japan
:Past and recent developments and its outlook
Shinobu Nakagawa
Associate Director-GeneralCenter for Monetary Cooperation in Asia(CeMCoA)International DepartmentBank of Japan
10-year government bond yield
2
0
2
4
6
8
10
12
J-8
5
J-8
6
J-8
7
J-8
8
J-8
9
J-9
0
J-9
1
J-9
2
J-9
3
J-9
4
J-9
5
J-9
6
J-9
7
J-9
8
J-9
9
J-0
0
J-0
1
J-0
2
J-0
3
J-0
4
J-0
5
J-0
6
J-0
7
J-0
8
J-0
9
Japan
US
Germany
%
0
1
2
3
4
5
J-0
8F
-08
M-0
8A
-08
M-0
8J-
08
J-0
8A
-08
S-0
8O
-08
N-0
8D
-08
J-0
9F
-09
M-0
9A
-09
M-0
9J-
09
J-0
9A
-09
S-0
9O
-09
N-0
9D
-09
Japan
US
Germany
%
Determinants of long-term interest rate
Monetary policy
Growth potential
Inflation expectation
Risk (or structural) factors
3
Monetary policy rate
4
0
2
4
6
8
10
12
J-8
5
J-8
6
J-8
7
J-8
8
J-8
9
J-9
0
J-9
1
J-9
2
J-9
3
J-9
4
J-9
5
J-9
6
J-9
7
J-9
8
J-9
9
J-0
0
J-0
1
J-0
2
J-0
3
J-0
4
J-0
5
J-0
6
J-0
7
J-0
8
J-0
9
BOJ
FRB
%
Japan's Quantitative Easing period
ECB
Yield spread10 year government bond yield ― policy rate
5
-2
-1
0
1
2
3
4
5
J-8
5
J-8
6
J-8
7
J-8
8
J-8
9
J-9
0
J-9
1
J-9
2
J-9
3
J-9
4
J-9
5
J-9
6
J-9
7
J-9
8
J-9
9
J-0
0
J-0
1
J-0
2
J-0
3
J-0
4
J-0
5
J-0
6
J-0
7
J-0
8
J-0
9
JapanUS
%
Germany
-1
0
1
2
3
4
J-0
8F
-08
M-0
8A
-08
M-0
8J-
08
J-0
8A
-08
S-0
8O
-08
N-0
8D
-08
J-0
9F
-09
M-0
9A
-09
M-0
9J-
09
J-0
9A
-09
S-0
9O
-09
N-0
9D
-09
JapanUS
%
Germany
Growth potential
Potential GDP Labor force
Average1998-2007
2008Average
1998-20072008
Canada 2.9 2.2 1.8 1.7
France 2.0 1.7 0.7 0.7
Germany 1.2 1.2 0.4 0.2
Italy 1.2 1.1 0.8 1.5
Japan 0.9 0.5 -0.2 -0.3
United Kingdom 2.7 2.3 0.9 1.1
United States 2.8 2.3 1.2 0.8
6
Percentage change from previous period
(Source) OECD Economic Outlook
Inflation expectation
7
i) CPIJapan U.S.
-3
-2
-1
0
1
2
3
4
5
6
7
Ja
n-8
5
No
v-8
6
Sep
-88
Ju
l-9
0
Ma
y-9
2
Ma
r-9
4
Ja
n-9
6
No
v-9
7
Sep
-99
Ju
l-0
1
Ma
y-0
3
Ma
r-0
5
Ja
n-0
7
No
v-0
8
headlinecore
%
-3-2-101234567
Ja
n-8
5
Au
g-8
6
Ma
r-8
8
Oct
-89
Ma
y-9
1
No
v-9
2
Ju
n-9
4
Ja
n-9
6
Au
g-9
7
Ma
r-9
9
Oct
-00
Ma
y-0
2
No
v-0
3
Ju
n-0
5
Ja
n-0
7
Au
g-0
8
headlinecore
%
Inflation expectation
8
ii) Break-even inflation rate
Note: TIPS has not been issued since July 2008 in Japan.
-4
-3
-2
-1
0
1
2
3
4
J-0
0
A-0
0
J-0
0
O-0
0
J-0
1
A-0
1
J-0
1
O-0
1
J-0
2
A-0
2
J-0
2
O-0
2
J-0
3
A-0
3
J-0
3
O-0
3
J-0
4
A-0
4
J-0
4
O-0
4
J-0
5
A-0
5
J-0
5
O-0
5
J-0
6
A-0
6
J-0
6
O-0
6
J-0
7
A-0
7
J-0
7
O-0
7
J-0
8
A-0
8
J-0
8
O-0
8
J-0
9
A-0
9
J-0
9
O-0
9
US
%
Japan
Inflation expectation
9
iii) Survey results for Japan
Risk (or structural) factors
Debt burden
Home bias
Bank balance sheet
10
Debt burden
11
0
50
100
150
200
250
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Canada
France
Germany
Italy
Japan
UK
US
Nominal GDP ratio, %
OECD Forecast
General government gross financial liabilities
(Source) OECD Economic Outlook
Home bias
12
Public Pension
12%BOJ8%
Financial Institutions
64%
Overseas7%
Households5%
Others4%
Share of JGBs holdersAs of end-Dec. 2008
Share of JGBs held by overseas
2
3
4
5
6
7
8
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2004 2005 2006 2007 2008
%
Japan(Dec.2008)
US(Dec.2008)
UK(Dec.2008)
Germany(Sep.2008)
France(Dec.2008)
overseas 6.8% 50.3% 36.5% 52.6% 33.8%
Share of government bonds held by overseas
Japanese banks’ balance sheet
13
Loan-deposit ratio
70
75
80
85
90
95
100
105
199
0
199
2
199
4
199
6
199
8
20
00
20
02
20
04
20
06
20
08
%
-10
-8
-6
-4
-2
0
2
4
6
8
10
199
0
199
2
199
4
199
6
199
8
20
00
20
02
20
04
20
06
20
08
%
deposit
loan
0
1
2
3
4
199
0
199
2
199
4
199
6
199
8
20
00
20
02
20
04
20
06
20
08
%
time deposit(averaged)
ordinary deposit(averaged)
Growth in loans and deposits Deposit interest rates
14
Net financial assets by economic agent in
Japan
-150
-100
-50
0
50
100
150
200
250
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
nominal GDP ratio, %
Overseas' net financial assets
Gross assets
Gross liabilities-150
-100
-50
0
50
100
150
200
250
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
nominal GDP ratio, %
Households
General governmnet
Non-financial private corporations
Domestic sector
Concluding remarks● Although its debt burden has been growing considerably, long- term interest rate in
Japan has been very low because of :
Very accommodative monetary policy, including quantitative easing
Low growth potential
Low inflation expectation
Home bias by Japanese financial institutions, particularly banks
● What banks have been facing includes :
Decline in loan demand
Continued deposit inflows despite of almost zero interest rates
Government bonds to be major investment assets
● Outlook for long-term interest rate :
Upward pressure owing to growing debt burden
Can we say, as long as household saving is larger than other sectors’ liability, such
pressure continued to be significantly mitigated?
15
