NOMURA J-TIPS Index

Global Markets Research
26 March 2021

Cross-asset - Japan

Index rulebook

Research Analysts
Japan Bond Indices
Index Operations Dept. - NSC
idx_mgr@jp.nomura.com+81 3 6703 3986

Key features of NOMURA J-TIPS Index• NOMURA J-TIPS Index is an investment return index developed to reflect theperformance of the entire secondary market of J-TIPS, inflation-indexed JGBs
(JGBis), which have a different return and risk profile than nominal bonds.
• The index value calculation method and inclusion criteria of the NOMURA J-TIPS
Index are based upon the NOMURA-BPI.
• The NOMURA J-TIPS Index includes JGBis with principal guaranteed (i.e., deflation
floored), the issuance of which started in October 2013.
• Bonds included in the NOMURA J-TIPS Index are reviewed monthly.

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

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1. Introduction
2. Sub-indices3. Scheduled portfolio reconstitution
3.1 Scheduled reconstitution date
3.2 Portfolio determination date
3.3 Scheduled reconstitution base date
3.4 Portfolio reconstitution announcement
4. Portfolio inclusion/exclusion method
4.1 Portfolio inclusion criteria for next month
4.2 Face amount for inclusion
4.3 Portfolio exclusion criteria for next month
5. Unscheduled portfolio reconstitution
5.1 Announcement of unscheduled portfolio reconstitution
6. Definition of NOMURA J-TIPS Index indicators
6.1 Definition of issue-specific return-risk indicators
6.2 Definition of portfolio indicators
7. Calculating index value
7.1 Method for calculating index
7.2 Return
7.3 Reference for obtaining market data
7.4 Key indices and data released
Appendix: Data delivery services
NOMURA J-TIPS Index data providers
Contact for further inquiries
Policies with regard to NSC’s indices
Appendix A-1

26 March 2021

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1. Introduction
First released in 2004, the NOMURA J-TIPS Index is a bond performance index
developed to reflect the performance of the entire secondary market for JGBis, whichhave a different return and risk profile than nominal bonds. The index value calculation
method and inclusion criteria of the NOMURA J-TIPS Index are based upon the
NOMURA-BPI[1] .

The Index Operations Dept. (IOD) in Nomura Securities Co., Ltd. (NSC) is the
Administrator of the NOMURA J-TIPS Index, and Nomura Research Institute, Ltd. (NRI)
serves as the Calculation Agent.
The IOD assumes primary responsibility for the daily calculation of the bondperformance index, its production and operation. Specifically, the IOD, in its role as
operations manager:• Maintains and records the index weightings of all constituents;• Reviews the index portfolios according to the inclusion/exclusion criteria, and replaces
securities in these portfolios as necessary, reflecting these changes in theperformance and other indicators; and reviews the index portfolio inclusion criteria.
• Announces changes in the securities included in the index portfolios, which are
determined as a result of daily operations management and scheduled reviews; and• Distributes the index portfolio performances, either through NRI’s data delivery
service or on its own.

The NOMURA J-TIPS Index is meant to be used as:
•
•
•
•
•
•

1.

A tool for determining investment policies (asset allocation strategies);
A tool for determining investment manager structure;
An investment management benchmark;A tool for portfolio management;
An investment performance indicator; andA risk management tool.

NOMURA-BPI® is a registered trademark of Nomura Securities Co., Ltd. (Registered
Number: 4991073)
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2. Sub-indices
Beginning in October 2013, the principals of JGBis are guaranteed at maturity (i.e.,
deflation floored), and these bonds are also included in the NOMURA J-TIPS Index. In the
NOMURA J-TIPS Index, the two types of JGBi are grouped differently, as follows:• NOMURA J-TIPS Index – deflation floored• NOMURA J-TIPS Index – non-floored

3. Scheduled portfolio reconstitution
The IOD reviews and reconstitutes NOMURA J-TIPS Index portfolios every month.
Next month’s portfolios are determined on the portfolio determination day of each month.

3.1 Scheduled reconstitution date
NOMURA J-TIPS Index portfolios are reconstituted on the first business day of themonth (scheduled reconstitution date), with inclusion/exclusion implemented after thebond market closes on the business day before the scheduled reconstitution date.

3.2 Portfolio determination date
In principle, next month’s portfolio determination date is the last business day of themonth.

3.3 Scheduled reconstitution base date
Next month’s portfolio base is determined on the portfolio determination date. The new
portfolio structure is determined in principle on the portfolio determination date based on
disclosed information available as of the scheduled reconstitution base date.

3.4 Portfolio reconstitution announcement
Information about the scheduled portfolio reconstitution of the NOMURA J-TIPS Index
is announced by NRI.

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4. Portfolio inclusion/exclusion method
4.1 Portfolio inclusion criteria for next month
The NOMURA J-TIPS Index incorporates all securities that meet the inclusion criteria
as of the scheduled portfolio reconstitution base date into the index portfolios for thefollowing month.
Fig. 1: NOMURA J-TIPS Index Inclusion Criteria
Inclusion candidate

Inflation-linked bonds issued by the Japanese government

Issuance process

Publicly-offered bonds issued in Japan

Currency denomination

JPY

CouponIssue date
Outstanding face value
Term to maturity

Fixed
Issues until the last day of the month prior to the scheduledreconstitution date
JPY1bn or more which is unadjusted for inflation as of the last day ofthe month the portfolio reconstitution is implemented
1 year or more

Note: NSC

4.1.1 Issuance process
The NOMURA J-TIPS Index incorporates publicly-offered bonds issued in Japan.
JGBis not publicly offered in the market (i.e., JGBs tailored for retail investors and sold via
the new OTC sales system and those issued for BOJ rollover) are excluded.
4.1.2 Term to maturity
The NOMURA J-TIPS Index only includes bonds that are dated 365 days or longer
from the last day of the month following the scheduled reconstitution base date to the full
redemption date. Inclusive of 29 February.

4.2 Face amount for inclusion
The NOMURA J-TIPS Index includes the amount equivalent to the issue amountpublicly offered in the market.

4.3 Portfolio exclusion criteria for next month
Any JGBi that falls short of the inclusion criteria (Figure 1) as of the scheduledreconstitution base date will be excluded from the index portfolio in the following month.
4.3.1 Outstanding face value
JGBis for which the outstanding face value amount will decrease to levels below
JPY1bn, unadjusted for inflation, on the last business day of the month following thescheduled reconstitution base date will be excluded from the index portfolio.
4.3.2 Term to maturity
The NOMURA J-TIPS Index excludes bonds that are dated less than one year (365days) until maturity as of the last business day of the month following the scheduledreconstitution base date[2] .

2.

In accordance with business practice, bonds with less than one year remaining tomaturity factor in leap days, while bonds with more than one year to maturity do notfactor in occurrences of 29 February in the interval.

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5. Unscheduled portfolio reconstitution
In principle, index portfolios for the next month, as determined on the portfolio
determination date, will remain unchanged. However, these planned portfolios may besubject to an unscheduled reconstitution, which will be implemented between the portfolio
determination date and the last business day of the month, if the material event occurs interms of any of the JGBis included.

5.1 Announcement of unscheduled portfolio reconstitution
Information about unscheduled portfolio reconstitution is announced by Nomura
Securities, except in cases where definite information on such a change is unavailable
until it actually takes place due to unexpected circumstances.

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6. Definition of NOMURA J-TIPS Index
indicators
6.1 Definition of issue-specific return-risk indicators
In the NOMURA J-TIPS Index, the issue-specific return-risk indicators are defined as
described below.
Note that variables whose name begins with “A ” represent inflation-adjusted numbers
in each of the following equations. Otherwise, the variables are not adjusted for inflation.
• Face value unadjusted for inflation
Outstanding face value amount unadjusted for inflation. This should be equal to theissue amount publicly offered in the market unless the bond is not partially redeemed.
• Face value adjusted for inflation
Inflation-adjusted outstanding face value calculated by multiplying the inflationunadjusted face value by the index ratio[3] , as indicated below:

AA：

Face value adjusted for inflationA：

Face value unadjusted for inflationIR：

Index ratio• Clean price unadjusted for inflation
Clean price per JPY100 based on the face value unadjusted for inflation.
• Clean price adjusted for inflation
Inflation-adjusted clean price calculated by multiplying the inflation-unadjusted clean
price by the index ratio, as indicated below:

3.

ACP

：

Clean price adjusted for inflation

CP：

Clean price unadjusted for inflationIR：

Index ratio

The index ratio is calculated based on the Consumer Price Index. The definition of
the index ratio ("Indexation Coefficient") is described in the Ministry of Financewebsite.
https://www.mof.go.jp/english/jgbs/topics/bond/10year_inflation/coefficient.htm

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• Accrued interest unadjusted for inflation
Inflation-unadjusted accrued interest incurred according to the number of days from thelast interest payment date to the calculation date.
• Accrued interest adjusted for inflation
Inflation-adjusted accrued interest calculated by multiplying the inflation-unadjusted
accrued interest by the index ratio, as indicated below:

Aac：

Accrued interest adjusted for inflationac：

Accrued interest unadjusted for inflationIR：

Index ratio• Dirty price unadjusted for inflation

DP：

Dirty price unadjusted for inflation

CP：

Clean price unadjusted for inflationac：

Accrued interest unadjusted for inflation• Dirty price adjusted for inflation

ADP：

Dirty price adjusted for inflation

ACP：

Clean price adjusted for inflation

Aac：

Accrued interest adjusted for inflation• Market value adjusted for inflation

AMV：

Market value adjusted for inflation

ACP：

Clean price adjusted for inflationA：

Face value unadjusted for inflation• Total accrued interest adjusted for inflation

ACC：

Total accrued interest adjusted for inflation

Aac：

Accrued interest adjusted for inflationA：

Face value unadjusted for inflation

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• Coupon rate
Coupon rate of the JGBi.
• Break-even inflation rate π
Assuming the rate of inflation will remain unchanged at a certain level (π ) until thebond’s maturity, the nominal interest payments and redemption amount are determined.
The present value of the inflation-unadjusted dirty price is equal to the total nominalinterest payments and redemption amount multiplied by the nominal discount factor.
Given this, the break-even inflation rate π is defined as follows:(For floored issues)(For non-floored issues)

DP：

Dirty price unadjusted for inflationπ：

Break-even inflation rateti：

Number of years until CF i occurs

T：

Number of years until redemption cash flow occurs

CF i

：

Real cash flow for i th period

DF ( t i )：Discount factor (nominal) for period t i

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• Nominal compound yield n
Based on the break-even inflation rate π , the nominal compound yield n is calculated
in the following equation:(For floored issues)(For non-floored issues)

DP：

Dirty price unadjusted for inflationπ：

Break-even inflation rateti：

Number of years until CF i occurs

T：

Number of years until redemption cash flow occurs

CF i

：

Real cash flow for i th periodn：Nominal compound yield (semi-annual)

I R (today )：Index ratio, as of today• Real compound yield r
The real compound yield r is defined as follows:DP：

Dirty price unadjusted for inflationr：Real compound yieldti：

Number of years until Ct i occurs

Ct i

：

Real cash flow for i th period

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• Duration

D：

Durationr：Real compound yieldDP：

Dirty price unadjusted for inflationti：Number of years until Ct i occurs

Ct i

：

Real cash flow for i th periodmD：

Modified duration

D：

Durationr：Real compound yieldDP：

Dirty price unadjusted for inflation• Modified duration

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6.2 Definition of portfolio indicators
Portfolio indicators are calculated using the issue-specific indicators of all issues in theindex portfolio. Basically, the inflation-adjusted weighted average is used in thecalculation. Note, however, that the inflation-adjusted clean/dirty price is calculated using
the weighted-average inflation-unadjusted face value amount.
Fig. 2: Portfolio Indicator Calculation Methods

Source: NSC

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7. Calculating index value
7.1 Method for calculating index
7.1.1 Total investment return index (total index)
This is an index of investment returns including capital and income gains. Assumingthat the index portfolio was purchased on the last business day of the previous month at avalue including accrued interest, coupon payments and redemptions are added to themarket value amount (including accrued interest), which is announced as the index value
for the day. All coupon payments and redemptions are assumed to be received in cashwithout interest on the day they are made, and reinvested at the following portfolio
reconstitution. Coupon payments made on weekends and holidays are assumed to bemade on the following business days.

T I (today )：Total index value for today

T I (e.l.m )：Total index value for the last business day of theprevious month

AMV (today )：Market value amount adjusted for inflation for today

AMV (e.l.m )：Market value amount adjusted for inflation for the lastbusiness day of the previous month

AAC (today )：Accrued interest adjusted for inflation for today

AAC (e.l.m)：

Accrued interest adjusted for inflation for the lastbusiness day of the previous month

A IC (today )：Income gains adjusted for inflation between the end of
previous month and today

ARD (today )：Redemptions adjusted for inflation between the end of
previous month and today

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7.1.2 Capital investment return index (Capital index)
This is an index of investment return in terms of capital gains. Assuming that the index
portfolio was purchased on the last business day of the previous month at the dirty price,redemptions that have occurred through the valuation date are added to the market value
amount (excluding accrued interest), which is announced as the index value for the day.
All redemptions are assumed to be received in cash without interest on the day they
are made, and reinvested at the following portfolio reconstitution.

CI (t oday )：Capital index value for today

CI (e.l.m )：Capital index value for the last business day of theprevious month

A MV (today)：

Market value amount adjusted for inflation for today

A MV (e.l.m )：AAC (e.l.m )：A RD (today )：Market value amount adjusted for inflation for thelast business day of the previous month
Income gains adjusted for inflation for the lastbusiness day of the previous month
Redemptions adjusted for inflation between the endof previous month and today

7.2 Return7.2.1 Total return (annualized)

Period m is assumed to precede period n in a given timeline.

RT ( m , n )：Total return from period m through period n

TI (i)：

Index value at period i∆ t D (>0)：

Days between period m and period n (not counting
the settlement date)

7.2.2 Capital return (annualized)

Period m is assumed to precede period n in a given timeline.

RC ( m , n )：Capital return from period m through period n

CI (i)：

Principal investment index return index at period i∆ t D (>0)：

Days between period m and period n (not counting
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7.2.3 Income return (annualized)

Period m is assumed to precede period n in a given timeframe.

RI ( m , n )：Income return from period m through period n

RT ( m , n )：Total return from period m through period n

RC ( m , n )：Capital return from period m through period n

7.3 Reference for obtaining market data
The NOMURA J-TIPS Index references the following bond market pricing data for the
mark-to-market valuation of the index portfolios (listed in descending order of priority):• JS Price• Nomura price
These values are provided on a settlement-day basis, and should be converted to
trade-day basis for use as a reference in calculating portfolio and performance indicators[4] .
JS Prices are evaluated and calculated by Nomura Securities Co., Ltd. and later
examined by Nikkei Inc., Nikkei Financial Technology Research Institute, Inc., andNomura Research Institute, Ltd. JS Prices are reliable for a variety of purposes, including
mark-to-market accounting. JS Prices are calculated using reasonable and consistentmethodology and undergo a process that examines validations to detect relative/absolute
outliers using the methodology designed by Nikkei Inc., Nikkei Financial Technology
Research Institute, Inc., Nomura Research Institute, Ltd., and Nomura Securities Co., Ltd.
JS Price lists more than 12,000 bonds in total (mainly publicly offered and private
placement domestic bonds) and covers almost 100% of index portfolios. In addition, JS
Price offers daily prices with good continuity.
NSC dealers in the front office trading desk in the Global Market Division value Nomura
prices for their own daily valuation process, and NSC is one of the key financial
instrument firms in the yen bond market, and is actively engaged in transactions withother financial instrument firms and its clients. For this reason, NSC is in a good position
to obtain traded prices and/or quotations in the secondary market.

7.4 Key indices and data released
Key indices provided in the NOMURA J-TIPS Index and their base dates are as follows(base dates vary depending on the index):

Index

Base date(= Base index value)

Publication
start date

NOMURA J-TIPS Index

31 Mar. 2004 (=100)

Oct. 2004

NOMURA J-TIPS Index - deflation floored

31 Oct. 2013 (=100)

Nov. 2013

4.

Tokyo Repo Rate is used as the discount rate.
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Appendix: Data delivery services
Data on performance indices, such as the total investment return index, and portfolio
indicators are available from the following sources:

NOMURA J-TIPS Index data providers• Nomura Securities’ Securities Market Benchmarks’ website
http://qr.nomura.co.jp/jp/jtips/index.html (Japanese page)• Nomura Research Institute Integrated Data Services (IDS)
Contact: Nomura Research Institute Investment Data Service Departmente-mail: ids-sales@nri.co.jp• Quick
NRIJ001

NOMURA Indices guidance

NRIJ125

NOMURA J-TIPS Index

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Contact for further inquiries
For inquiries on the use of NOMURA J-TIPS Index as an investment benchmark,please refer to the contact details below:
Nomura Securities Co., Ltd.
Global Research Division, Financial Engineering & Technology Research CenterIndex Operations Dept.
e-mail: bpi@jp.nomura.com

The intellectual property rights, and any other rights, in the NOMURA J-TIPS Index
belong to Nomura Securities Co., Ltd. (“Nomura”). Nomura does not guarantee theaccuracy, completeness, reliability, usefulness, marketability, merchantability or fitness of
the Index, and does not account for business activities or services that any Index user
and/or its affiliates undertakes with the use of the Index.
A license agreement with Nomura Securities is required to use the Index and accessdetailed data. In the case of an unavoidable event such as computer breakdown or
natural disaster, calculation of the Index may be delayed or suspended. While every effort
is made to ensure that the information used in this report and all published information isbased on reliable data, it should be noted that data may be changed or amended whennecessary.
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Policies with regard to NSC’s indices
The index-related policies below are published on our website.
See the following link for details:
http://qr.nomuraholdings.com/en/guides/index.html

•
•
•
•
•

Index Governance Framework
Conflicts of Interest Policy
Index Calculation Policy
Glossary (Fixed Income)Complaints Handling Policy

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Appendix A-1
Analyst Certification
I, Index Operations Dept., hereby certify (1) that the views expressed in this Research report accurately reflect my personalviews about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation
was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3)no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities
International, Inc., Nomura International plc or any other Nomura Group company.

Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc. If you have any difficulties with the website, please email grpsupport@nomura.com for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI, and may not be subject to FINRA Rule
2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Nomura Global Financial Products Inc. (NGFP) Nomura Derivative Products Inc. (NDP) and Nomura International plc. (NIplc) are registered with
the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and NIplc are
generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.
ADDITIONAL DISCLOSURES REQUIRED IN THE U.S.
Principal Trading: Nomura Securities International, Inc and its affiliates will usually trade as principal in the fixed income securities (or in related
derivatives) that are the subject of this research report. Analyst Interactions with other Nomura Securities International, Inc. Personnel: The fixedincome research analysts of Nomura Securities International, Inc and its affiliates regularly interact with sales and trading desk personnel inconnection with obtaining liquidity and pricing information for their respective coverage universe.
Valuation methodology - Fixed Income
Nomura’s Fixed Income Strategists express views on the price of securities and financial markets by providing trade recommendations. Thesecan be relative value recommendations, directional trade recommendations, asset allocation recommendations, or a mixture of all three.
The analysis which is embedded in a trade recommendation would include, but not be limited to:• Fundamental analysis regarding whether a security’s price deviates from its underlying macro- or micro-economic fundamentals.
• Quantitative analysis of price variations.
• Technical factors such as regulatory changes, changes to risk appetite in the market, unexpected rating actions, primary market activity andsupply/ demand considerations.
The timeframe for a trade recommendation is variable. Tactical ideas have a short timeframe, typically less than three months. Strategic tradeideas have a longer timeframe of typically more than three months.
For the purposes of the EU Market Abuse Regulation, the distribution of ratings published by Nomura Global Fixed Income Research is asfollows:
67% have been assigned a Buy (or equivalent) rating; 80% of issuers with this rating were supplied material services* by the Nomura Group**.
0% have been assigned a Neutral (or equivalent) rating.
33% have been assigned a Sell (or equivalent) rating; 67% of issuers with this rating were supplied material services by the Nomura Group.
As at 31 Dec 2020.
*As defined by the EU Market Abuse Regulation**The Nomura Group as defined in the Disclaimer section at the end of this report

Disclaimers

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transactions of ¥200,000 or less). When Japanese equities are purchased via OTC transactions (including offerings), only the purchase priceshall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed withthe customer. Japanese equities carry the risk of losses owing to price fluctuations. Japanese REITs carry the risk of losses owing tofluctuations in price and/or earnings of underlying real estate. Japanese ETFs and ETNs carry the risk of losses owing to fluctuations in theunderlying indexes or other benchmarks. Japanese Infrastructure Funds carry out the risk of losses owing to fluctuations in price and/or
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offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for
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Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.5% (tax included) of thetransaction amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time ofredemption. Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an asset
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such as investment company compensation.
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prices fluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry
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collateral ratios as they vary depending on the transaction. Interest rate swap transactions, etc. carry the risk of losses owing to fluctuations inmarket prices in the interest rate, currency and other markets, as well as reference indices. Losses incurred as such may exceed the value ofmargin collateral, in which case margin calls may be triggered. In the event that both parties agree to enter a replacement (or termination)transaction, the interest rates received (paid) under the new arrangement may differ from those in the original arrangement, even if terms otherthan the interest rates are identical to those in the original transaction. Risks vary by transaction. Please thoroughly read the written materials
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the financial position of the protection buyer. CDS transactions carry the risk of losses owing to changes in the credit position of some or all of
the referenced entities, and/or fluctuations of the interest rate market. The amount the protection buyer receives in the event that the CDS is
triggered by a credit event may undercut the total amount of premiums that he/she has paid in the course of the transaction. Similarly, theamount the protection seller pays in the event of a credit event may exceed the total amount of premiums that he/she has received in thetransaction. All other conditions being equal, the amount of premiums that the protection buyer pays and that received by the protection seller
shall differ. In principle, CDS transactions will be limited to financial instruments business operators and qualified institutional investors.
Transfers of equities to another securities company via the Japan Securities Depository Center are subject to a transfer fee of up to ¥11,000(tax included) per issue transferred depending on volume. No account fee will be charged for marketable securities or monies deposited.

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