Debt Management in Japan: How to Cope with Interest Rate Risk

Abstract

The paper by Fujii provides a throughout description of the features of the Japanese public debt in order to analyse interest rate risk. More specifically, given the high debt level, the paper aims at assessing the impact on public finances of future increases in interest rates by using a stochastic simulation. In the Japanese case no foreign-currency denominated bonds are issued and the share of floating-rate notes and bonds is negligible, so the most relevant policy option concerns the debt maturity structure. The paper concludes that a short-maturity pattern strategy increases the size of market risk even in the short-run. The different risk implied by a short-maturity structure as opposed to a long-maturity structure gets bigger as the simulation period extends. Quantitative evaluations are provided.