Massive bond purchases by the Bank lower the risk premiums in the JGB market, and this contains nominal interest rates; at the same time, once the policy effect materializes, the market’s anticipation of a recovery in economic activity and prices exerts upward pressure on nominal interest rates.
After the introduction of QQE, interest rates fluctuated due to these two contradictory factors, and the volatility in the JGB market rose as a result. Such high volatility, if it is prolonged, tends to prompt market participants to sell bonds for the purpose of risk management, and heavy bond sales could cause an unnecessary rise in interest rates.