Japan's Outright Purchases of Commercial Paper (Japan GFC)

Journal of Financial Crises: Vol. 2 : Iss. 3, 405-420. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/17

Yale Program on Financial Stability Working Paper

16 Pages Posted: 26 Oct 2020

See all articles by Alec Buchholtz

Alec Buchholtz

Yale University - Yale Program on Financial Stability

Date Written: October 10, 2020

Abstract

Following the collapse of Lehman Brothers in September 2008, the global commercial paper (CP) market began to tighten as interest rates rose and investors sought more-liquid money market securities. The Bank of Japan (BOJ) introduced several operations in late 2008 to promote liquidity in the CP market. In January 2009, the BOJ began to purchase CP and asset-backed CP outright from banks and other financial institutions. The BOJ could purchase up to ¥3 trillion of CP with a residual maturity of up to three months, among other short-term securities, via 10 purchases of up to ¥300 billion each. The BOJ limited its purchases to CP with a credit rating of a-1 or guaranteed by a company rated a-1. The BOJ would conduct purchases until March 31, 2009; it later extended the measure until December 31, 2009. As the CP market normalized, usage of the outright purchase measure decreased, with the last bid occurring in September 2009. The measure is seen as relatively successful, as interest rates on CP decreased during its first few months and the program provided needed liquidity to financial institutions during a period of market stress.

Keywords: commercial paper, asset-backed commercial paper, Bank of Japan, Japan

JEL Classification: G01,G28

Suggested Citation

Buchholtz, Alec, Japan's Outright Purchases of Commercial Paper (Japan GFC) (October 10, 2020). Journal of Financial Crises: Vol. 2 : Iss. 3, 405-420. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/17, Yale Program on Financial Stability Working Paper, Available at SSRN: https://ssrn.com/abstract=3717289

Alec Buchholtz (Contact Author)

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
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New Haven, CT 06520-8200
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