Easing In Japan Research Articles

Scarcity and Spotlight Effects on Liquidity: Quantitative Easing in Japan

We investigate the determinants of the term structures of bond yield and market liquidity in the context of the Quantitative Easing (QE) programs implemented by the Bank of Japan. Between 2011 and 2016, we find that Japanese government bonds (JGBs) show an improvement in liquidity through the spotlight effect but also experience a deterioration in liquidity through the scarcity effect. As for the yield, both the spotlight and scarcity effects work in the same direction (i.e., they raise bond prices). Overall, the prices of JGBs rise by reflecting only the strong demand from the QE, despite the deterioration in liquidity.

Scarcity and Spotlight Effects on Term Structure: Quantitative Easing in Japan

We investigate the determinants of the term structures of bond yield and market liquidity in the context of the Quantitative Easing (QE) programs implemented by the Bank of Japan. Between 2011 and 2016, we find that Japanese government bonds (JGBs) show an improvement in liquidity through the spotlight effect but also experience a deterioration in liquidity through the scarcity effect. As for the yield, both the spotlight and scarcity effects work in the same direction (i.e., they raise bond prices). Overall, the prices of JGBs rise by reflecting only the strong demand from the QE, despite the deterioration in liquidity.

Did the expectations channel work? Evidence from quantitative easing in Japan, 2001–06

The Japanese economy experienced a prolonged period of quantitative easing (QE) over the five years from March 2001 to March 2006. The purpose of this paper is to evaluate the direct and exclusive effects of this rather unconventional monetary policy on financial markets, economic activity, and labor markets in Japan empirically by employing exactly the same testing period with the QE period in most of our examinations. Using a range of variables, we first estimate vector error correction models (VECMs) that consider the cointegrating relations between the Japanese monetary base and other variables in our data-set. We also use Markov-switching dynamic regression (MSDR) models, Bayesian vector autoregressive (VAR) models, and causality analyses to test for robustness. Together, all the above analyses consistently provide a number of interesting findings. First, QE lowered short- and medium-term credit spreads and improved Japanese credit market conditions. Second, QE increased stock prices in Japan and imp...

Efficiency of Quantitative Easing in Japan during (2001,2006) through Estimation of Precautionary Money Demand-II

Efficiency of Quantitative Easing in Japan during (2001,2006) through Estimation of Precautionary Money Demand-II

Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing

Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.

Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing

Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.

Explaining inflation in the period of quantitative easing in Japan: Relative-price changes, aggregate demand, and monetary policy

Concentrating on the period of quantitative easing in Japan, this paper reexamines the correlation between the asymmetry of sectoral relative-price changes and the aggregate inflation rate. This correlation is widely interpreted as evidence that short-run inflation is determined by supply-side factors; however, we study whether, in addition to the inflation rate, monetary policy and aggregate demand explain it. Using producer price index data, we show, first, that the positive and significant effect of relative-price change asymmetries on inflation is not robust with respect to various indicators of asymmetry. Second, using a VAR framework, we find that aggregate demand robustly affects the measures of asymmetries, which raises doubt about whether they can be interpreted as pure supply-side indicators. Third, in addition to the indirect effect via measures of asymmetries, demand directly affects inflation. Thus, we reject the claim that the recent disinflation/deflation period in Japan can be understood as primarily a supply-side phenomenon and suggest that the main driving force was demand, whereas supply and monetary policy were of lesser importance.

Efficiency of Quantitative Easing in Japan during (2001,2006) through Estimation of Precautionary Money Demand

Efficiency of Quantitative Easing in Japan during (2001,2006) through Estimation of Precautionary Money Demand

Relative-Price Changes and Demand Factors in the Period of Quantitative Easing in Japan

Concentrating on the period of quantitative easing in Japan, this paper reexamines the correlation between the asymmetry of sectoral relative-price changes and the aggregate inflation rate. This correlation is widely interpreted as evidence that short-run inflation is determined by supply-side factors; however, we study whether, in addition to the inflation rate, monetary environment and aggregate demand explain this correlation. Using producer price index data, we show, first, that the positive and significant effect of relative-price change asymmetries on inflation is not robust with respect to various indicators of asymmetry. Second, indicators of aggregate demand and monetary environment affect the measures of asymmetries, which raises doubt about whether they can be interpreted as pure supply-side indicators. Third, in addition to the indirect effect via measures of asymmetries, demand and monetary factors directly affect inflation. Thus, we reject the claim that the recent disinflation/deflation period can be understood as primarily a supply-side phenomenon.

Quantitative Easing in Japan: Past and Present

Quantitative Easing in Japan: Past and Present

Quantitative Easing: A Rationale and Some Evidence from Japan

This paper reviews the rationale for quantitative easing when central bank policy rates reach near zero levels in light of recent announcements regarding direct asset purchases by the Bank of England, the Bank of Japan, the U.S. Federal Reserve and the European Central Bank. Empirical evidence from the previous period of quantitative easing in Japan between 2001 and 2006 is presented. During this earlier period the Bank of Japan was able to expand the monetary base very quickly and significantly. Quantitative easing translated into a greater and more lasting expansion of M1 relative to nominal GDP. Deflation subsided by 2005. As soon as inflation appeared to stabilize near a rate of zero, the Bank of Japan rapidly reduced the monetary base as a share of nominal income as it had announced in 2001. The Bank was able to exit from extensive quantitative easing within less than a year. Some implications for the current situation in Europe and the United States are discussed.

Policies and Prospects in Japan and the Implications for the Asia-Pacific Region

This paper uses the G-Cubed (Asia-Pacific) model-a macroeconomic model with rich cross-country links-to explore the implications for Japan and Asia of several shocks to the Japanese economy. The results suggest that, while fiscal consolidation in Japan would initially dampen domestic growth, over the medium term the impact on both the domestic and regional economies would be positive. Quantitative monetary easing in Japan would boost domestic activity in the short-run, while being basically neutral for the region. Finally, a loss of confidence in the yen would be negative for Japan, but positive for the region because of a reallocation of capital flows toward non-Japan Asia.

Policies and Prospects in Japan and the Implications for the Asia-Pacific Region

This paper uses the G-Cubed (Asia-Pacific) modela macroeconomic model with rich cross-country links - to explore the implications for Japan and Asia of several shocks to the Japanese economy. The results suggest that, while fiscal consolidation in Japan would initially dampen domestic growth, over the medium term the impact on both the domestic and regional economies would be positive. Quantitative monetary easing in Japan would boost domestic activity in the short-run, while being basically neutral for the region. Finally, a loss of confidence in the yen would be negative for Japan, but positive for the region because of a reallocation of capital flows toward non-Japan Asia.