After describing the basic trading mechanisms of Japan's bond futures, this paper firstly analyzes the efficiency of its market based on simple econometric methods with which arbitrage, hedging, and speculation are examined separately. Secondly, how spot bond prices have been affected by the creation of bond futures is discussed from the viewpoint of a change in the conditional variance of the spot price. Empirical results suggest that; 1. Japan's bond market satisfies covered interest parity while its futures market would be inefficient in terms of speculation; 2. Spot bond holders are provided with an effective risk-hedging instrument by the futures; 3. The effect of the bond futures' existence on the spot price variability is ambiguous.