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JCER Financial Stress Index

JCER Financial Stress Index is 0.072, released on July 26, 2022

- The BOJ has decided to continue massive easing program
- The yen strengthened against the dollar due to caution about the US economy, financial stress remains a low level

  Senior Economist


  The JCER Financial Stress Index for Japan is an indicator based on daily market data to capture the rise of financial systemic risk, which could cause a malfunction of the entire financial system and adversely affect the real economy. Since this index is based on market data, it is possible to quantitatively grasp financial stress in near real time.
  The index is constructed by selecting three individual indicators from the following five sub-markets: (1) stock market, (2) money market, (3) bond market, (4) financial intermediaries (banking sector), and (5) foreign exchange market. The index takes a value between 0 and 1, and higher value imply higher financial stress.

The latest value: 0.072   <+0.031 from the last weekend>
(As of July 22, 2022)


  The index is designed to detect a recurrence of financial system instability in the late 1990s in Japan and of the global financial crisis of 2007-08. With reference to the “Composite Indicator of Systemic Stress” by European Central Bank (ECB), this is created by compositing the following 15 financial market data, such as stock price and its volatility, bond yield spreads, and exchange rate changes.

Stock market: Volatility of TOPIX (absolute value of log return), Ratio of TOPIX to its highest value in the past two years, Liquidity indicator based on trading volume
Money market: Spread between 3-month TIBOR and 3-month Treasury yields, Repo rate, Dollar funding premium (yen basis, 1 year)
Bond market: Volatility of 10-year government bonds (absolute value of change in yield), Swap spread (difference between 2-year swap rate and 2-year government bond yield), BBB rated corporate bond spread
Financial intermediaries (banking sector): Specific shock on bank stocks (estimating the variance of the residuals obtained by regressing the returns of the bank stock index on the returns of TOPIX using the GARCH (1,1) model), Ratio of TOPIX banking stock index to its highest value in the past two years, Banking sector bond spreads
Foreign exchange market: Volatility in yen/dollar exchange rate (absolute value of log return), Volatility in yen/euro exchange rate (absolute value of log return), Volatility in yen/pound exchange rate (absolute value of log return)

For more details of this index, please refer to the following reports and literature.
  Japan Center for Economic Research, 2019. “Risks in the BOJ’s ETF Purchases and Regional Financial Institutions - A stress event could reignite financial system anxiety,” FY 2019 Financial Research Report II: Overhauling Financial Risks in Japan (No. 41), February 12, 2020. (members only).
  Holló, D., Kremer, M. and Lo Duca, M., 2012. “CISS - A Composite Indicator of Systemic Stress in the Financial System,” Working Paper Series, No. 1426, European Central Bank, March 2012.

  The JCER Financial Stress Index have resumed regular updates from April 2022, although the updating of the index was temporarily suspended due to the unavailability of some underlying data following the suspension of LIBOR publication. For details of the revision, please refer to "Notice of the revision in the series of underlying data" below.


JCER Financial Stress Index is 0.050, released on September 25, 2023

-BOJ continues with current monetary easing, Fed leaves interest rates unchanged but expects an additional hike before the end of the year
-Financial stress remains a low level with the yen slowly weakening and stock prices remaining at high levels

Mayuko AbeTakashi MIYAZAKI


JCER Financial Stress Index is 0.064, released on July 31, 2023

- Both of central banks in the U.S. and Euro area hiked interest rate, BOJ also made YCC policy more flexible and raise the upper bound of long-term interest rate
- Financial stress maintains a low level as weakening yen and high stock prices are maintained, but uncertainty about outlook still remains



JCER Financial Stress Index is 0.076, released on June 26, 2023

- TOPIX keeps at its highest level in about 33 years and financial stress remains a low level
- Banking stocks are steady on expectations of an early revision of the BOJ's easing policy, while the yen depreciates at its weakest level in about seven months



JCER Financial Stress Index is 0.109, released on May 29, 2023

- TOPIX is at its highest level in about 33 years since the bubble period and financial stress keeps a low level
- While Japanese yen was weakening due to the widening interest rate differential, the U.S. debt ceiling issue reached a tentative agreement to avert a default on U.S. Treasuries



JCER Financial Stress Index is 0.096, released on April 24, 2023

- Anxiety about the financial system in the U.S. and Europe receded, stock prices rose, and financial stress declined
- Most economists expect policy to be maintained the status quo at the first meeting under new Governor Ueda