Chapter 2 2.1

Who Issues JGBs?

Understanding the roles of the MOF and BOJ in JGB issuance, and the flow from primary to secondary markets

A Common Misunderstanding

This is one of the most commonly misunderstood distinctions. JGBs are issued exclusively by the Ministry of Finance (MOF).

The Bank of Japan (BOJ) is just the central bank; it sets monetary policy, and manages government debt for them, like a bank does your finances. The BOJ does not issue JGBs, but it plays two key roles:

  1. It acts as the MOF's "fiscal agent" to run the auctions.
  2. It is an investor of JGBs in the secondary market for monetary policy purposes.

Before the step-by-step process, it's important to know the difference between two "markets":

  • Primary Market: This is where a new bond is created and sold for the first time (at an auction). This is where the government raises money.
  • Secondary Market: This is the "stock market" for bonds, where investors buy and sell existing bonds from each other. The government is not involved in these trades.

Here is the high level step-by-step process of how a new JGB is created and sold:

1
Ministry of Finance (MOF)
Decides the issuance plan based on government funding needs amongst other factors (e.g., "We need to borrow ¥2.7 trillion by issuing a new 10-year bond").
Fiscal Policy
↓
2
MOF instructs BOJ
Tells the Bank of Japan, in its role as the government's fiscal agent, to conduct the auction sale.
Administrative Instruction
↓
3
Bank of Japan (BOJ)
Runs the technical auction process in the Primary Market, collecting competitive bids from authorized Primary Dealers.
Primary Market - Auction
↓
4
Primary Dealers
A group of 23 large banks and securities firms (e.g., Nomura, Mizuho, MUFG) who participate in the auction. They submit bids, and the winning bidders buy the new JGBs directly from the MOF.
Institutional Buyers
↓
5
Secondary Market Trading
The Primary Dealers then sell these JGBs to other investors (like pension funds, insurers, foreign funds, or even the BOJ itself for its monetary policy operations). The bond is now freely traded.
Secondary Market - Open Trading

Key Point: The BOJ's role as an investor in the secondary market is part of their Monetary Policy (to control interest rates), which is separate from the MOF's role as the issuer, which is Fiscal Policy (to fund the government).

Japan’s Government Debt Growth (2020-2025)

The chart below shows the quarterly evolution of Japan’s outstanding government debt.

💡 Understanding the Chart:

  • Total Outstanding Debt: Japanese government debt consists of two categories although they are often referred to collectively as "JGBs":
    • JGBs (Japanese Government Bonds): Long-term bonds (2-40 years) with regular coupon payments
    • Financing Bills (国庫短期証券): Short-term treasury securities (<1 year) issued at a discount for cash flow management and the Japan equivalent of T-bills

References

  1. Japan Ministry of Finance. "About JGBs." Debt Management - Guide to JGBs. Available at: https://www.mof.go.jp/english/policy/jgbs/debt_management/guide.htm. Accessed: October 21, 2025.
  2. Bank of Japan. "Functions and Operations of the Bank of Japan." Available at: https://www.boj.or.jp/en/about/outline/data/fobojall.pdf. 2005.
  3. "The Bank of Japan Act." Japanese Law Translation. Last amended 2019. Available at: https://www.japaneselawtranslation.go.jp/en/laws/view/3788/en. See Article 35 ("Handling of Treasury Money") and Article 36 ("Handling of National Government Affairs").