Government Debt Maturity and the Term Structure in Japan

Abstract

We construct a dataset of the maturity structure of Japanese government bonds and bond yields and structurally estimate a preferred-habitat term structure model for fiscal years 1975 and 2020. The model incorporates a stochastic trend common to the short rate and the maturity-composition factor, allowing changes in the long-run mean of the short rate. The study finds that a decrease in the maturity-composition factor, which is characterized by an increase in the share of short-term remaining maturity in Japan, has compressed the long-term bond yield in a persistently low interest rate environment, particularly over the past decade.

Keywords: term structure of interest rate; maturity structure; debt management; Japan; bond yield

JEL Classification: E43; E52; G11; G12; H63