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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

  Senior Economist


  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.


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



JCER Financial Stress Index is 0.135, released on March 27, 2023

- A string of U.S. bank failures has sparked Europe as well
- Wary of financial system instability remained deep-rooted, and financial stress rose to a level not seen since July 2020



JCER Financial Stress Index is 0.090, released on February 27, 2023

- Mr. Ueda, a candidate for the next BOJ governor, expressed his intention to continue monetary easing
- Financial markets temporarily reacted with a higher stock prices and a weaker yen, and financial stress remains a relatively low level



JCER Financial Stress Index is 0.097, released on January 31, 2023

- Volatility in the JGB market increases over the BOJ's monetary policy
- Financial stress keeps relatively low, though at its highest level since March 2022 on monthly average basis