Central Bank Purchases and Corporate Bond Issuance during the Pandemic: The Case of Japan

Abstract

In its massive purchases of corporate bonds during the COVID-19 pandemic, the Bank of Japan set the maximum eligible remaining maturity at five years. I document that, during the post-pandemic period, Japanese firms increased bond issuance, with the increase concentrated in (i) issuance of bonds with eligible maturities (1–5 years) and (ii) simultaneous issuance that combines eligible and longer, ineligible (>5-year) maturities. These results are consistent with central bank purchases promoting bond issuance via a demand channel—in contrast to the U.S. experience under the Federal Reserve’s facilities targeting similar-maturity corporate bonds—and with firms mitigating future rollover risk.

Keywords: Corporate bond purchase program, Debt maturity, Gap-filling, Pandemic

JEL Classification: E44, E58, G01, G32