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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 0.028, released on October 26, 2020

- Financial stress is at the lowest level since April 2018, markets are in a wait-and-see mood ahead of the US presidential election



JCER Financial Stress Index is 0.041, released on September 28, 2020

- The new administration of Suga was inaugurated, no major upheaval in financial market following Abenomics



JCER Financial Stress Index is 0.037, released on August 31, 2020

- Prime Minister Abe resigned, will market tensions increase over future policy management?



JCER Financial Stress Index is 0.052, released on July 27, 2020

- Financial stress decreased mainly due to thin trading, refrained from buying before consecutive holidays



JCER Financial Stress Index is 0.072, released on July 13, 2020

- Financial stress fell slightly since last week, down to a level before the Corona shock