Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing

23 Pages Posted: 14 Sep 2015

See all articles by Serkan Arslanalp

Serkan Arslanalp

International Monetary Fund (IMF)

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: August 2015

Abstract

Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.

Keywords: quantitative easing, portfolio rebalancing, speed limits, portfolio, market, inflation, markets, General, Portfolio Choice, speed limits.,

JEL Classification: E50, F32, G11, G15

Suggested Citation

Arslanalp, Serkan and Botman, Dennis P. J., Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing (August 2015). IMF Working Paper No. 15/186, Available at SSRN: https://ssrn.com/abstract=2659543

Serkan Arslanalp (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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