2022年日本債務管理報告（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