"Quantitative and Qualitative Easing by the Bank of Japan: A Provisional Evaluation " (in Japanese)

This paper analyzes the effects of the first arrow of Abenomics, aggressive monetary easing, on asset markets and the economy. The paper first confirms through a statistical analysis that the non-conventional monetary policy measures and/or the expectation of their implementation during the period since November 2012 have had larger effects on asset prices, especially, the yen and Nikkei, than those in earlier years. The paper then points out the fragility of the current asset price response to the monetary easing. The response of the yen and Nikkei has been main ly led by the global fast money community. Global investors have front-run, but domestic investors have not followed suit. That is, the so-called portfolio rebalancing effects of the BOJ's large purchases of Japanese government bonds have not taken place. I argue that foreign investors have formed a too rosy view of the effectiveness of non-conventional monetary policy based on their experience with the recent Fed's and ECB's policies, while domestic investors suffer from entrenched deflationary expectations. The slow response of domestic investors carries the risk of a sharp rise in interest rates if inflation in fact starts to move up on a sustained basis.