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JCER Financial Stress Index

JCER Financial Stress Index is 0.165, released on June 8, 2020

- While stock prices continue to grow, a second wave of infection and the US-China conflict are at risk

Takashi MIYAZAKI
  Senior Economist

2020/06/08

  The JCER Financial Stress Index for Japan is, based on daily market data, an indicator to capture the rise of financial systemic risk. Systemic risk is defined that financial system as a whole is malfunctioning and the real economy is adversely affected. 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 intermediation (banking sector), and (5) foreign exchange market.

The latest value: 0.165 (As of June 5, 2020)

 

  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. This index refers to the “Composite Indicator of Systemic Stress” by European Central Bank (ECB) and 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 intermediation (banking sector): Specific shock to 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 of yen/dollar exchange rate (absolute value of log return), Volatility of yen/euro exchange rate (absolute value of log return), Volatility of 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.

2022/04/26

JCER Financial Stress Index is 0.034, released on April 26, 2022

- Financial stress remains low level as a mood of restraint prevails ahead of the holidays
- Great uncertainty lies in the future over the situation in Ukraine

Takashi MIYAZAKI

2022/01/31

JCER Financial Stress Index is 0.034, released on December 27, 2021

- Bank of Japan decided to maintain large-scale easing, while CP and corporate bond buying measures to be phased out
- Financial stress remains low, but concerns about the Omicron variant are rising

Takashi MIYAZAKI

2021/12/27

JCER Financial Stress Index is 0.034, released on December 27, 2021

- Bank of Japan decided to maintain large-scale easing, while CP and corporate bond buying measures to be phased out
- Financial stress remains low, but concerns about the Omicron variant are rising

Takashi MIYAZAKI

2021/11/30

JCER Financial Stress Index is 0.096, released on November 30, 2021

- Financial stress remains low level, but risk aversion spreads with the detection of new variant virus

Takashi MIYAZAKI

2021/10/25

JCER Financial Stress Index is 0.054, released on October 25, 2021

- Wait-and-see mood prevails before the general election and announcement of financial results of major companies
- Wariness about Chinese real estate debt problem is eased for the present, and financial stress remains low level

Takashi MIYAZAKI