Government Debt Maturity and the Term Structure in Japan

Abstract

Using the constructed data on maturity composition at each fiscal year’s end, this study structurally estimates a canonical preferred-habitat term structure model for the period 1995-2020 in Japan. The study finds that a reduction in the maturity-composition factor is associated with an increase in the proportion of short-term remaining maturity, while the proportions of other specific maturities remain relatively stable in comparison. This reduction has contributed to the compression of long-term bond yields in a persistently low interest rate environment. Notably, in the late-2010s, this factor has become the primary determinant of long-term bond yield movements with an increasing degree of compression observed over this period.

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

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