The Impact of the Fed's Rate Hike on the Japanese Gaming Company - Square Enix

Abstract

The Fed's rate hike affects global stock markets in the short run. The volatility of Square Enix's earnings during the window period is analyzed by examining the net effect of Fed rate hikes on the stock price of Square Enix, a Japanese listed company, through VAR and GARCH model. The results show that the net capital outflow dominates the current period when the dollar appreciates relative to the yen in period t=0; Square Enix is the beneficiary of the current round of successive interest rate hikes under the change in cumulative effect. In addition, the impulse response shows that the change of return is basically in line with the "J-curve" effect. The capital outflow effect dominates in the first few periods of the exchange rate increase, and the export effect dominates over time. The coefficients of the logarithmic exchange rate and its lagged term show that the increase in the exchange rate has a significant effect on Square Enix volatility, and the effect is lagged. From the full model, the magnitude of the negative effect is smaller than the positive effect, and therefore, the exchange rate increase has a significant positive effect on the volatility of Square Enix returns. The study argues that Japan should maintain macro policy sustainability, avoid large fiscal deficits, and set aside sufficient policy space to address internal and external risk challenges.