2022年日本债务管理报告（英文）

DebtManagementReport

2022

TheGovernmentDebtManagement

andtheStateofPublicDebts

FinancialBureau,MinistryofFinance,JAPAN

i

Box3

Box4

2022

DebtManagementReport

TheGovernmentDebtManagementandtheStateofPublicDebts

Contents

Preface

■1About“DebtManagementReport”2

■2WhatisDebtManagementPolicy?3

(1)Overview3

(2)Frameworkof“GovernmentFundingActivities”4

(3)DebtswithPublicCharacteristics5

Box1JGBYields7

Box2DemandforJGBswithnegativeyields9

IStateofDebtManagementPolicies

■1TrendsofJGBMarketinFY2021

(1)Review

(2)InvestorTrends

■2JGBIssuancePlan

(1)JGBIssuancePlanforFY2021(revisedunderasupplementarybudget)

(2)AnnouncementofJGBIssuancePlanforFY2022

(3)OverviewofDiscussionsatVariousMeetings

(4)JGBIssuancePlanforFY2022

(5)JGBIssuancePlanBasedonMarketTrendsandDemands

(6)RevisionofJGBIssuancePlanforFY2022

Cost-at-RiskAnalysis

ReviewofAdvisoryCouncilonGovernmentDebtManagementandItsSuccessor

■3DiversificationofJGBInvestorBase

(1)JGBHoldingsbyRetailInvestors

(2)JGBHoldingsbyForeignInvestors

■4Others

(1)DebtManagementAuthorities’BusinessOperations

(2)ApartialmodificationtotheOrderRegardingAccountManagementInstitutions

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12

14

16

16

18

18

19

22

24

25

26

27

28

30

34

34

34

ii

IIFrameworkofDebtManagement

令Chapter1GovernmentBonds(JGBs)

■1PrimaryMarketforGovernmentBonds36

(1)JGBsbyLegalGroundsofIssuance36

(2)TypesofJGBs40

(3)MethodsofIssuance42

(4)JGBMarketSpecialParticipantsScheme46

(5)GovernmentBondAdministration48

■2SecondaryMarketforGovernmentBonds51

(1)JGBMarketLiquidityMaintenanceandEnhancement51

(2)OTCTransactionsandTransactionsontheStockExchange52

(3)ImprovementstotheJGBTransactionSettlementSystem53

(4)WITransaction55

(5)BondGensakiandBond-LendingTransactions55

(6)STRIPS58

(7)JGBFuturesTrading59

■3DebtManagementSystems62

(1)RedemptionSystem62

(2)LiquidityEnhancementAuctions70

(3)Buy-backProgram72

(4)InterestRateSwapTransaction74

(5)DialoguewithMarketParticipants74

■4TaxationofGovernmentBonds76

(1)Individuals(Residents)76

(2)DomesticCorporations77

(3)NonresidentIndividualsandForeignCorporations77

(4)TaxExemptionSchemeforNonresidentIndividualsandForeignCorporations77

令Chapter2FinancingBills,Borrowings,Government-Guaranteed DebtandSubsidyBonds

■1FinancingBills80

(1)LegalGroundsofFinancingBills80

(2)StatusofFinancingBillsintheBudget81

(3)AuctionMethods,etc.81

(4)OutlineofCashManagementoftheNationalTreasury81

■2Borrowings82

(1)LegalGroundsofBorrowings82

(2)StatusofBorrowingsintheBudget82

(3)SourceofBorrowings82

(4)BorrowingsfromthePrivateSector83

(5)BorrowingthroughPublicAuctiononPrivate-sectorBorrowings84

■3Government-GuaranteedDebt85

(1)LegalGroundofGovernmentGuarantee85

iii

(2)FeaturesofGovernment-GuaranteedDebt85

(3)TreatmentintheBudgetandExaminationProcess85

■4SubsidyBonds87

(1)SubsidyBonds(narrowlydefined)87

(2)Subscription/ContributionBonds87

(3)Others88

令Chapter3OtherPublicDebt

■1LocalGovernmentBonds(LGBs)89

(1)BasicSchemeofLGBs89

(2)LGBProgram91

■2DebtofIncorporatedAdministrativeAgencies,etc.93

(1)DebtofIncorporatedAdministrativeAgencies,etc.93

(2)FinancialConditionsofIncorporatedAdministrativeAgencies,etc.94

令Chapter4DebtManagementinForeignCountries

■1DebtManagementPoliciesinForeignCountries95

(1)DebtManagementPolicyFrameworks95

(2)BondTypesandIssuanceMethods96

(3)LiquidityMaintenance/EnhancementMeasures98

(4)PrimaryDealerSystem99

■2DebtManagementStatusinForeignCountries100

(1)GovernmentDebtIssuanceTrends100

(2)AverageMaturity102

(3)BreakdownbyGovernmentBondHolders103

■3CollaborationandCooperationwithForeignCountries104

IIIAppendices

令Chapter1GovernmentBonds(JGBs)

■1PrimaryMarketforGovernmentBonds106

(1)IssuanceAmountofGovernmentBonds106

(2)HistoricalChangesinJGBMarketIssuancebyJGBTypes107

(3)AuctionResultsforJGBsandT-BillsinFY2021108

(4)IssuanceAmountofJGBsandT-BillsOfferedtotheMarketatEachAuction111

(5)Principal/CouponPaymentCorrespondingtoDaysofIssuanceinFY2022112

(6)SuccessfulBidsShareforJGBsbyInvestorTypeinFY2021113

(7)IssuanceofJGBsforRetailInvestors114

(8)IssuancebytheBankofJapanRollover115

(9)Front-LoadingIssuanceofRefundingBonds115

(10)ListofCommissionsforIssuingJGBs,etc.116

■2SecondaryMarketforGovernmentBonds117

iv

(1)10-YearJGBYield117

(2)10-YearGovernmentBondsYields117

(3)YieldsofJGBsinFY2021117

(4)JGBYieldCurves118

(5)VariousRatesintheShort-termFinancialMarketinFY2021118

(6)Break-Even-Inflation(BEI)Rate118

(7)JGBShareinTotalTradingVolumeofYenBonds119

(8)JGBShareinTotalIssuanceAmountofYenBonds119

(9)PortfolioInvestmentAssetsinFY2021120

(10)PortfolioInvestmentLiabilitiesinFY2021120

(11)TrendsinJGBTransactions(byinvestortype)inFY2021121

(12)TradingVolumeofYenBonds122

(13)TradingVolumeofJGBFutures122

(14)TradingVolumeofBondGensaki122

(15)TradingVolumeofBond-Lending123

(16)TradingVolumeofJGBsOptionbyOTC123

(17)TradingVolumeofJGBFuturesOptions124

(18)OutstandingAmountofSTRIPS-Principal-OnlyBook-entryTransferJGBs124

(19)Japan'sSovereignRatingbyMajorCreditRatingAgencies125

(20)ListofSovereignRatingsbyMajorCreditRatingAgencies125

■3DebtManagementSystems126

(1)RevenuesandExpendituresfortheSpecialAccountfortheGDCF

(FY2022InitialBudget)126

(2)PaymentStatusofDebtRedemptionExpensesandInterest,DiscountExpensesandsoonoftheEachAccount(FY2022InitialBudget,FY2020Settlementof

Accounts)127

(3)TransferofRedemptionSources,RedemptionAmount,OutstandingAmountandRefundingAmountoftheGDCF(FY2022InitialBudget)128

(4)GDCFInvestmentinJGBs128

(5)BudgetarySurplusoftheSpecialAccountoftheGDCF129

(6)ResultsofLiquidityEnhancementAuctionsinFY2021129

(7)Buy-backResultsinFY2021129

(8)Buy-backResults129

(9)VariousMeetings130

(10)HistoryofPostwarDebtManagementPolicy134

(11)GovernmentBond-relatedLegalSystems136

令Chapter2FinancingBills,BorrowingsandGovernment-GuaranteedDebt

■1FinancingBills(FBs)139

(1)OutstandingAmountofFBs-BreakdownbytheTypes(asoftheendofFY2021)139

(2)OutstandingAmountofFBs139

(3)IssuanceAmountofFBsinFY2021-BreakdownbyFundingResources140

(4)ReceiptsandPaymentsontheNationalTreasuryforFY2021140

■2Borrowings141

(1)OutstandingAmountofBorrowings141

(2)OutstandingAmountofBorrowings-BreakdownbytheTypesofAccount(asoftheendofFY2021)141

(3)OutstandingAmountofBorrowingsoftheSpecialAccountforLocalAllocationTax142

(4)AmountofBidsAcceptedandAverageInterestRateatEachAuctionbytheSpecialAccountforLocalAllocationTax142

(5)AuctionResultsoftheBorrowingsoftheSpecialAccountforLocalAllocationTaxinFY2021143

(6)AuctionResultsoftheBorrowingsoftheSpecialAccountfortheNationalForestDebtManagementinFY2021144

(7)AuctionResultsoftheBorrowingsoftheSpecialAccountforEnergyPolicyinFY2021144

■3Government-GuaranteedDebt145

(1)ChangesintheOutstandingAmountofGovernment-GuaranteedDebt145

(2)ChangesintheIssuanceAmountofGovernment-GuaranteedDomesticBondsOfferedtotheMarket145

(3)BreakdownoftheGovernment-GuaranteedDebtbyAgencies146

(4)IssuanceCalendarofGovernment-GuaranteedDomesticBondsbyAgenciesinFY2021147

(5)OutstandingAmountofGovernment-GuaranteedForeignBonds-BreakdownbyDenominationandbyAgencies(asoftheendofFY2021)149

(6)Yieldsof10-YearGovernment-GuaranteedBondsinFY2021149

令Chapter3OtherPublicDebt

■1LocalGovernmentBonds(LGBs)150

(1)OverviewofLGBPrograminFY2022150

(2)LGBProgram-BreakdownbyFundingResources150

(3)OutstandingAmountofLGBProgram-BreakdownbyFundingResources151

(4)IssuanceConditionsofPublicOfferingLGBsinFY2021152

(5)IssuanceAmountofPublicOfferingLGBs152

■2DebtofIncorporatedAdministrativeAgencies,etc.153

(1)FY2022FILPPlan153

(2)PlannedandActualIssuanceAmountofFILPAgencyBonds154

(3)Yieldsof10-YearFILPAgencyBondsinFY2021155

令【Supplement】FiscalConditionsandDebtOutstandings

(1)TrendinGeneralAccountTaxRevenues,TotalExpendituresandGovernmentBondIssuances156

(2)GovernmentBondIssuanceandBondDependencyRatio156

(3)ChangesinRatioofPrimaryBalancetoGDP157

(4)ProjectionsinPrimaryBalance(CentralandLocalgovernmentbasis;percentageofGDP)157

(5)GovernmentDebt-relatedExpendituresintheGeneralAccount-BreakdownbyCategories(FY2022)158

(6)HistoricalChangesinGovernmentDebt-relatedExpenditures158

(7)ProjectionoftheFY2022BudgetImpactonFollowingYear'sExpenditureandRevenue159

(8)Cash-flowProjectionsoftheGDCF160

(9)ChangesintheOutstandingAmountofJGBs,FinancingBills,Borrowingsand

Government-GuaranteedDebt161

(10)Long-termDebtOutstandingofCentralandLocalGovernments162

(11)BreakdownoftheOutstandingAmountofGeneralBondsbyRemainingYearstoMaturity163

(12)Term-to-maturityStructureofGeneralBonds(FY2022InitialBudgetBasis)163

(13)BreakdownoftheOutstandingAmountofGeneralBondsbyMaturityTypesandTheirAverageInterestRateattheendofFY2021164

(14)OutstandingInterestRateWeightedAverage,InterestPaymentofGeneralBonds

andAverageYearstoMaturity164

(15)OutstandingAmountofJGBandT-Bill-BreakdownbyHolders-165

(16)BalanceSheetofJapaneseGovernment(GeneralAccountandSpecialAccounts)

(asoftheendofFY2020)166

(17)InternationalComparisonofGeneralGovernmentFiscalBalancetoGDP167

(18)InternationalComparisonofGeneralGovernmentGrossDebttoGDP168

(19)InternationalComparisonofGeneralGovernmentNetDebttoGDP168

v

vi

Chapter1GovernmentBonds

2SecondaryMarket

forGovernmentBonds

ⅢAppendices

Thetabslocatedinthesamepositionsindicatethatthechaptersarerelevanttoeachotheracrossthepartstheybelongto.

Chapter1GovernmentBonds

2SecondaryMarket

forGovernmentBonds

ⅡFramework

(BodyText)

Preface

2

Preface

1About“DebtManagementReport”

Theobjectiveofthe“DebtManagementReport,”whichhasbeenpublishedsince2004,istoprovidereadersacrossawidespectrumspanningdomesticandforeignmarkets,governmentaffairs,andresearch,etc.,withtheopportunityofgainingadeeperunderstandingofJapan’sdebtmanagementpolicy.Thisreport,thoughfocusingonJapaneseGovernmentBond(JGB)managementpolicyasdebtmanagementpolicy,coversissuesinvolvingpublicdebtsingeneral.

Tobeginwith,PartI,headed“StateofDebtManagementPolicies,”discussestherecenttrendsintheJGBmarket,aswellasvariouslatestpolicies,specificallyinrelationtotheJGBIssuancePlanforthisfiscalyear.

PartII,headed“Framework,”concernsitselfwiththefundamentalmechanismofpublicdebtsanddebtmanagementpolicyingeneral.

Lastly,PartIII,the“Appendices,”listsallmaterialsthatdidnotfitintothepreviouspart;thissectionshouldbeusedwithreferencetoPartII“Framework.”

Inthislatestreportaswell,weprovidealotofcross-referencesincludingsomethatlinkPartII“Framework”withPartIII“Appendices”sothatreaderswillbeabletoquicklyaccesstheinformationthattheywant.Yourcommentsarehighlyappreciatedforfurtherimprovementsofthisreport.

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2

Preface

WhatisDebtManagementPolicy?

(1)Overview

UndertheFY2022budget(April-March),thecentralgovernmentplanstoissueJGBsworth215.0trillionyen,postingadecreaseof21.0trillionyenfromtheinitiallevelforFY2021.ConstructionBondsandSpecialDeficit-FinancingBondstoprovideGeneralAccountrevenuesdecreaseby6.7trillionyenfromtheinitiallevelforthepreviousyearto36.9trillionyen.Ontheotherhand,JGBsoutstandingattheendofFY2021totaledasmuchas1,096.0trillionyen.

ThegovernmentraisesfundswithFinancingBillsandBorrowingsaswellasJGBs.IfincludingFinancingBillsandBorrowings,outstandinggovernmentdebtsexceptgovernment-guaranteeddebtcameto1,241.3trillionyen.Moreover,thegovernmentgivesguaranteestoIncorporatedAdministrativeAgenciesinorderforthemtocarryoutfundingtoimplementpublicprojects,andthegovernment-guaranteeddebttotals32.0trillionyen(ThefiguresareattheendofFY2021).

Thegovernment’sfundraisingamountorflowhasbecomeenormous.Outstandingdebtsonstockbasishavebeenincreasingpersistently.Governmentdebtmanagementaffectsnotonlythechoiceoffinancialassetsofeconomicentitiessuchascorporationsandhouseholds,butalsotheflowoffundsonamacro-scale,whicheventuallywouldinfluenceinterestrates.Inturn,changesinmarketinterestratesinfluencegovernmentfundingactivitiesandtheactivitiesofeveryeconomicentity.

Basedonthesepoints,thegovernment,whiletryingtomitigatefiscalburden,implementsJGBissuance,absorption,distributionandredemptionmeasurestoallowgovernmentdebts(JGBs,FinancingBills,Borrowings,Government-GuaranteedDebtandSubsidyBonds)tobesmoothlyacceptedateachstageofthenationaleconomy.Thesemeasuresrepresent“debtmanagementpolicy.”InJapan,basedonthefollowingbasicgoalsforJGBManagementPolicy,thegovernmentcarefullyimplements“communicationswiththemarket”throughvariousmeetingsforthedevelopmentandoperationoftheJGBIssuancePlan,triestobaseJGBissuancefullyonmarketneedsandtacklesthediversificationofJGBholders:

(1)EnsuringthesmoothandsecureissuanceofJapaneseGovernmentBonds

(2)Minimizingmedium-tolong-termfundraisingcosts

Meanwhile,anyexcessiveresponsetotemporaryorshort-termchangesinmarketdemandcouldaffectthemarket’stransparencyandpredictabilityformarketparticipants,leadingtoariseinmedium-tolong-termfundraisingcosts.InJapanwheremassivegovernmentdebtissuanceisexpectedforthefuture,therefore,thegovernmentwilltrytoissueJGBsmorestablyandtransparentlywhileidentifyingmedium-tolong-termdemandtrends.

The“GuidelinesforPublicDebtManagement,”publishedbytheInternationalMonetaryFundandtheWorldBankin2001,describessovereigndebtmanagementas“theprocessofestablishingandexecutingastrategyformanagingthegovernment’sdebtinordertoraisetherequiredamountoffunding”andtheobjectiveofsovereigndebtmanagementas“toensurethatthegovernment’sfinancingneedsanditspaymentobligationsaremetatthelowestpossiblecostoverthemediumtolongrun,consistentwithaprudentdegreeofrisk.”

4

Preface

(2)Frameworkof“GovernmentFundingActivities”

☞UnlikeJGBs,Borrowingsareaformoffundingthatdoesnotinvolvetheissuingofsecurities.

Governmentexpendituresinayearshouldbasicallybecoveredbytaxandotherrevenuesintheyear.Tosatisfyexpendituredemandthatcannotbecoveredbysuchrevenues,however,thegovernmentissuesJGBsorcarriesoutBorrowings(☞).ThegovernmentalsoissuesFinancingBillstocovertemporarycashshortagesfordailycashmanagementoftheNationalTreasury.Thefollowingdiscussestheframeworkofthesegovernmentfundraisingactivities.

Fig.1NationalTreasuryReceiptsandPayments

【NationalTreasury】

(Allreceiptsandpaymentsofthecashinthe

NationalTreasuryismadethroughtheBOJ.)

(PrivateSector)

RedemptionofJGBs,repaymentoflong-termBorrowings

IssuanceofFinancingBills

IssuanceofJGBs(includingRefundingBonds),long-termBorrowings

Localallocationtax,generalexpenditures,otherpaymentssuchaspensionbenefits

Taxesandotherrevenue

Fund-raisingtocovertemporarycashshortageoftheNationalTreasury

＜Payments＞＜Receipts＞

Fund-raisingtomeetannualgovernmentexpendituredemands

ThecentralgovernmentbudgetconsistsoftheGeneralAccountand13SpecialAccounts(asofApril1,2022),andallreceiptsandpaymentsintheseaccountsaremanagedthroughtheBankofJapan(BOJ).Asfollows,thegovernmentsmoothlyimplementsspendingunderthebudgetbyusingJGBsandBorrowingstosatisfyexpendituredemandthatcannotbecoveredbytaxand

otherrevenuesandbyissuingFinancingBillstocovertemporarycashshortagesoftheNationalTreasury.

A.JGBsandBorrowingstomeetannualgovernmentexpendituredemand

ThegovernmentissuesJGBsorcarriesoutBorrowingstosatisfyexpendituredemandthatcannotbecoveredbytaxandotherrevenuesandbooksfundsraisedthroughJGBsandBorrowingsasrevenues.Thegovernmentsmoothlyimplementsbudgetspendingbyraisingfundsinthiswayasnecessary.

Inadditiontoplanningthegovernmentdebtmanagementpolicy,theFinancialBureauoftheMinistryofFinanceimplementsthepolicythroughconductingJGBauctions,issuanceandredemption,andauctionsforBorrowings.

B.FinancingBillstocovertemporarycashshortageoftheNationalTreasury

Governmentministries,agenciesorspecialaccountscarryoutalotoffiscalactivitieseveryday.AllthereceiptsandpaymentsaremadethroughtheBOJfortheirintegratedhandling

5

Borrowings

(assumed

debts)

LocalGovernment

Bonds

LocalGovernment

Bonds

Note1:Theshadedarearepresentsgovernmentdebts.

Note2:Inadditiontothesedebts,therearegovernmentbondsthatareheldbytheBankofJapanasameansofopenmarketoperations.Note3:TheGovernment-GuaranteedBondsissuedbytheJapanFinanceOrganizationforMunicipalities,areissuedonlyforrefundingof

Government-GuaranteedBondsconvertedfromtheformerJapanFinanceCorporationforMunicipalEnterprises.

Basedonwhatwasdescribedabove,thechartbelowprovidesanoverviewofthevariouselementsofpublicdebtsandliststherelevantreferencepointsinthisreport.

Preface

intheNationalTreasury.AsexplainedinsectionA,thegovernmentraisesfundswithJGBsandBorrowingstomeetexpendituredemandthatcannotbecoveredbytaxandotherrevenues.However,thegovernmentseestemporarycashshortagesandsurplusesduetolagsofday-to-dayreceiptsandpaymentsofNationalTreasuryfunds.TheFinancialBureauoftheMinistryofFinancemakesadjustmentsthroughtheissuanceofFinancingBillsinthecaseofshortage,andthroughthetemporaryuseofthetreasurysurplusinthecaseofsurplus(“CashManagementintheNationalTreasury”)(☞).

(3)DebtswithPublicCharacteristics

Besidesgovernmentdebts,thereareseveralformsofpublicdebtsincludinglocalgovernmentbondsanddebtofIncorporatedAdministrativeAgencies,etc.Suchpublicdebtwouldaffectgovernmentdebtmanagementthroughthemarketinterestrateformationmechanism.

Fig.2PublicDebts(ConceptionalDiagram)

FB

FB

Government

Borrowings

FB

GovernmentBonds

(ReconstructionBonds)

GovernmentBonds

(ConstructionBonds,Special

Deficit-FinancingBonds)

GovernmentGuaranteedBonds

Government-GuaranteedBorrowings

FiscalLoanFund

(SpecialAccount)

IncorporatedAdministrativeAgencies,etc.

GovernmentDebt

ConsolidationFund(SpecialAccount)

LocalGovernmentBonds

FILPAgencyBonds,Borrowings

Government-GuaranteedBonds

JapanFinanceOrganizationforMunicipalities

GovernmentBonds(RefundingBonds)

SpecialAccounts

FinancialMarkets

(asofApril1,2022)

GeneralAccount

(PublicIssueBonds)

GovernmentBonds

(FILPBonds)

Borrowings

Borrowings

Local

FB

FB

☞Theterm“revenue”shall

refertoalltheincomeinone

fiscalyearandtheterm

“income”shallmeanreceived

fundsthatserveasthesource

ofpaymenttomeetthe

demandsarisingonthe

variouslevelsoftheState.

FinancingBills,whichare

issuedtomanagetheNational

Treasury,arenotcountedas

revenue,sinceFinancing

Billsareredeemedwiththe

revenueofthesamefiscal

year.

Debts

ⅠⅡ(Framework)

Ⅲ(Appendices)

PrimaryMarketfor

GovernmentBonds

■2SecondaryMarketfor

GovernmentBonds

■3DebtManagementSystems

P126

P106

P117

Government

令Chapter1

■1PrimaryMarketforGovernmentBonds

■2SecondaryMarketforGovernmentBonds

令Chapter1■1

■1TrendsofJGBMarketinFY2021

■2JGBIssuancePlan

■3DiversificationofJGB

P12

P16

P36

P51

GeneralBonds

FILPBonds

Bills

Borrowings

Government-GuaranteedDebt

■3DebtManagementSystemsP62

■4TaxationofGovernmentBondsP76

InvestorBase

P27

令Chapter2■1FinancingBills

FinancingBills

令Chapter2■1

Financing

P139

P80

Borrowings

Borrowings

令Chapter2■2

令Chapter2■2

P82

P141

Government-Guaranteed

Debt

令Chapter2■3

令Chapter2■3

Government-

GuaranteedDebtP85

P145

SubsidyBonds

令Chapter2■4SubsidyBonds

P87

LocalGovernment

LocalGovernment

Government

Other

PublicDebts

令Chapter3■1

令Chapter3■1

Bonds

Local

BondsP89

BondsP150

DebtofIncorporatedAdministrativeAgencies,etc.

DebtofIncorporatedAdministrativeAgencies,

ofIncorporated

令Chapter3■2

令Chapter3■2

Debt

AdministrativeAgencies,etc.

etc.P93

P153

Preface

6

Fig.3VariousElementsofPublicDebtsandRelevantReferencePointsinThisReport

insidethisreport(fordetails,see

Contents)

Topics

PublicDebts

7

Preface

(2)

Parvalue(100yen)-Purchaseprice(yen)

Maturity(years)

(1)

＋

(Yield:%)

Assumption:10-YearJGB(Couponat2%,parvalueat100yen)

(Price:yen)

0.5yearslater

1year

later

1.5yearslater

9yearslater

9.5yearslater

Box1JGBYields

Japanesegovernmentbondisabondthegovernmentissuesbypromisingtopayacertainamountofmoneyafteracertainperiodoftime.TheMOFpresetsacouponandmaturityforaJGBissuance.WhiletheJGBparvalue(anamountthataJGBholderwillreceiveuponredemption)remainsunchanged,aJGBpriceatwhichmarketparticipantsbuyfluctuatesdependingontheconditions,includingsupplyanddemand.Forexample,aJGBwithaparvalueof100yenmaybepricedat95yen,belowtheparvalue,orat105yen,abovetheparvalue.JGByieldisanannualpercentagerateofreturnonaJGBbasedonthepurchaseprice.

InthecaseamarketparticipantbuysaJGBwiththeparvalueof100yen,forexample,theinvestmentreturnincludesthefollowing:

(1)Anannualinterestincome(anincomegainrepresentedbyacoupon),and

(2)Agapbetweentheparvalueandthepurchaseprice(capitalgainorloss)thatisannualized.

TheJGByieldisrepresentedbythefollowingequation.

Fig.B1-1Calculatingyield

Annualinterestincome(yen)

Purchaseprice(yen)

Yield＝×100

(Beforetax,simpleinterest,%)

Fig.B1-2Relationshipbetweenyieldandprice

Theannualinterestincomein(1)isfixedbythecoupondeterminedupon

issuanceandwillremainunchangeduntilredemption.However,thepurchase

pricein(2)fluctuatesdependingonthepurchasetiming.Therefore,theJGByield

fluctuates.Therightgraph(Fig.B1-2)indicatestherelationshipbetweentheJGB

priceandyieldintheaboveequationfora10-YearJGBthathasa2%couponand

apervalueof100yen.Asthepurchasepricefalls(from100yento95yen),the

yieldrises(from2.0%to2.63%).Conversely,asthepricerises(from95yento

100yen),theyielddeclines(from2.63%to2.0%).

Note:Thefigureisforillustrativepurposesonly.

Thefigurebelow(Fig.B1-3)showsacashflowindicatingfundreceiptsand

paymentsfrompurchasingtoredemptionfora10-YearJGBthathasa2%

couponandapervalueof100yen.Ifaninvestorbuysthe10-YearJGBatapriceof95yenandholdsituntilitsredemption,forexample,theinvestorwillgetatotalinvestmentreturnof25yenincludingtheinterestincomeof20yenandthegapof5yenbetweentheparvalueandthepurchaseprice.Theannualyield(simpleinterest)comestoapprox.2.63%withtheinterestincomeof2yenandthecapitalgainof0.5yen.

Fig.B1-3Bondinvestmentcashflow

(10-YearJGBpricedat95yenthathasa2%couponandapervalueof100yen)

10yearslater

Interest

1yen

Interest

1yen

Interest

1yen

Interest

1yen

Interest

1yen

Interest

1yen

Totalinterestincomein10years=1yen×2times×10years=20yen

Redemptionamount100yen

Purchaseamount▲95yen

8

Preface

0.5yearslater

1yearlater

1.5yearslater

9yearslater

9.5yearslater

Inrecentyears,JGByieldsintheshort-tomedium-termzonehavebeennegative.Ifaninvestorbuysthe10-YearJGBatapriceof125yenandholdsituntilitsredemption,forexample,thecombinationofaninterestincome(20yen)andthegap(▲25yen)betweentheparvalueandthepurchasepricewillbringaboutaloss(▲5yen)(Fig.B1-4).Onanannualbasis,thecombinationofanannualinterestincome(2yen)andtheannualcapitalloss(▲2.5yen)bringsayield(simpleinterest)ofapprox.▲0.40%.

Fig.B1-4Bondinvestmentcashflow

(10-YearJGBpricedat125yenthathasa2%couponandapervalueof100yen)

10yearslater

Interest

1yen

Interest

1yen

Interest

1yen

Interest

1yen

Interest

1yen

Interest

1yen

Totalinterestincomein10years=1yen×2times×10years=20yenPurchaseamount▲125yen

Redemptionamount100yen

IfaninvestorbuysaJGBwithanegativeyield