Abstract
This paper uses daily data to perform an empirical analysis of the relationship between recent Japanese stock prices and macroeconomic variables under the zero or low interest policy in Japan. The empirical results indicate that short-term interest rates have not impacted Japanese stock prices. On the other hand, long-term interest rates, exchange rates, and foreign stock prices have been significant determinants of Japanese stock prices. This seems counter to traditional economic theory, but interest rates were quite low and other variables, such as exchange rates and other stock prices, play important roles in determining Japanese stock prices.
Highlights
Starting in the 1990s, Japan experienced unprecedented recession and deflation
Japanese stock prices are regressed by the US stock price, exchange rate, and interest rates
This paper examined the era of the zero or low interest rate policy
Summary
Starting in the 1990s, Japan experienced unprecedented recession and deflation. In that period, Japan conducted traditional, aggressive fiscal policy under severe budget constraints, and the Bank of Japan (BOJ; the Japanese central bank) conducted unprecedented zero or low interest rate policy. The effect of these policies, zero or low interest rate policy and quantitative easing policy on stock prices has not been discussed fully. Analysis of this effect is important because of its impact on the Japanese economic recovery, which has prevailed for more than 20 years. The influence of macroeconomic variables and relationships among them have been changing constantly, as noted above Under such circumstances, theoretical analysis is important; the research must rely on empirical analysis. Some papers have dealt with only the era of quantitative easing; few studies have been done for the era of zero or low interest rate policy.
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