Third Time's the Charm? An Analysis of the Bank of Japan's New Policy Measures

Abstract

This paper evaluates the effect of the Bank of Japan’s recent quantitative easingannouncements on asset prices, beginning in April 2013. I utilize an event-study methodology that studies changes in these asset prices to gauge market reactions to Bankof Japan news. Japan has experienced three main stages of quantitative easing, andresearchers have conducted numerous studies on the effectiveness of the first two stages.This paper continues the research on Japanese quantitative easing by studying the morerecent third stage “QE3.” Consistent with previous research on Japan’s policies, myfindings suggest that the announcements caused significant reductions in most assetprices over time. However, it is debatable whether the large size of QE3 correlated withthe changes in magnitudes compared to QE2 and QE1. It also appears that theannouncements has not yet increased inflationary expectations, which have remainedbelow BOJ targets.