Impact of negative interest rate policy on the swap market in Japan: Comparative analysis before and after yield curve control

No co-movement is found among swap rates with a maturity of 10, 15, 20, and 30 years before the introduction of yield curve control (YCC) under Negative Interest Rate Policy (NIRP). On the other hand, they co-move after the introduction, driven by a single common trend. No single pair of swap rates move together before the introduction, but every pair move together after the introduction. The function of the swap market was lost after the introduction of NIRP. This caused uncertainties regarding the formation of the yield curve among the market participants in the super long zone of the swap market. After the Bank of Japan (BOJ) introduced YCC to move the yield curve upward, particularly in moving the 10-year Japanese Government Bond (JGB) yield to around zero percent, structural changes took place not only in JGB but also in swap markets.