Bank of Japan: A Network Analysis of the JGB Repo Market

Takumi Horikawa, Yujiro Matsui and Yasufumi Gemma
Working paper No.21-E-14 December 2021

In this paper, we attempt to understand the characteristics of the Japanese government bond (JGB) repo market by applying network analysis methods to highly granular data on JGB repo transactions. We especially use a measure of “network centrality” which quantitatively identifies financial institutions that play an important role in the transaction network and a “community detection” method which identifies groups of financial institutions that have close transactional relationships with each other. From the results, it was observed that some highly important financial institutions functioned as intermediaries for transactions and that continuous transaction relationships within groups were built around them. These characteristics may contribute to the efficient matching of cash borrowing and lending needs, and to the smooth execution of large-lot transactions. We also conducted some analysis of the behavior of the network structure of the JGB repo market under market stress using the data from March 2020, when the repo rate fluctuated significantly due to the spread of the COVID- 19 pandemic. The results of the analysis in this paper indicate the importance of continuously monitoring the functioning of the JGB repo market, and also provide clues for maintaining and improving the functioning and robustness of the market.

The full paper is available at https://www.boj.or.jp/en/research/wps_rev/wps_2021/data/wp21e14.pdf

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