Japan’s postwar Public Finance Law (1947) set a strict norm of budget discipline by restricting the issuance of bonds to cover ordinary budget deficits. This legal framework shaped how government debt could be issued and encouraged reliance on controlled, institution-centered financing in the early postwar decades.
Bond trading began on the Tokyo Stock Exchange (TSE), providing an organized venue for secondary-market trading. Over time, exchange-based trading and price publication helped make bond prices more visible and supported broader participation beyond traditional bank relationships.
Japan issued its first postwar deficit-financing bonds in fiscal 1965, marking a turning point from the earlier balanced-budget norm. This change expanded the role of JGB issuance as a tool of fiscal policy, increasing the importance of reliable distribution and trading mechanisms.
From fiscal 1966, “construction bonds” were issued under an exception in the Public Finance Law for public works and certain investment-type spending. This created a durable channel for bond-financed infrastructure spending and helped normalize regular government borrowing within legal constraints.
Japanese government bonds (JGBs) were listed on the TSE for the first time after World War II. This was an important step toward building a more open secondary market, where JGBs could be traded and priced more transparently than in purely relationship-based placements.
Japan authorized yen-denominated bond issuance by selected non-residents, launching the “Samurai bond” market. Allowing foreign issuers into the yen bond market supported market development by expanding product variety, investor choice, and cross-border market links.
A law permitting deficit-financing bonds was first enacted in 1975, with the key feature that it required annual renewal. This reflected political and legal caution about sustained deficit finance, while still enabling large-scale JGB issuance as economic conditions changed in the 1970s.
In the mid-1970s, authorities officially recognized gensaki transactions (a form of repurchase agreement, or “repo,” used for short-term funding against securities) and introduced new government bond structures such as 5-year “discount” bonds. Together, these changes helped market participants finance and trade JGBs more actively, improving secondary-market liquidity.
The Bank of Japan created the JGB Book-entry System (1980) to improve safekeeping and settlement as issuance and trading volumes grew. By reducing reliance on paper handling and registration changes, it supported a larger and more efficient secondary market for JGBs.
The TSE listed 10-year JGB futures in 1985, Japan’s first financial futures product. Futures gave investors a standardized way to hedge interest-rate risk (manage the risk that bond prices fall when yields rise), helping the cash JGB market handle growing issuance and trading activity.
The Bank of Japan started operating BOJ-NET in 1990, an online network for transmitting transfer instructions. This strengthened settlement infrastructure for JGB transactions, enabling higher volumes and supporting the modernization of bond market operations.
In 1994, the Bank of Japan introduced delivery-versus-payment (DVP) for JGB settlement, meaning securities transfer occurs if and only if the corresponding funds transfer occurs. This reduced settlement (counterparty) risk and improved confidence in large-scale JGB trading.
In November 1996, Japan proposed “Big Bang” reforms aimed at liberalizing and modernizing its financial markets, moving away from the heavily protected “convoy” system. These reforms formed part of the backdrop for more competitive, market-oriented trading and distribution practices across securities markets, including government bonds.
In February 1999, the Bank of Japan lowered the overnight call rate to near zero and later communicated that it would maintain this stance until deflationary concerns were dispelled. This policy shift influenced the JGB yield curve (the pattern of yields across maturities) and marked the bond market’s entry into the deflation-era environment of very low interest rates.
Japanese Government Bond Market: Postwar Development to the Deflation Era, 1950–2000