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Abenomics: Why was it so successful in changing market expectations?

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  • Fukuda, Shin-ichi

Abstract

‘Abenomics’ refers to a new unconventional economic policy regime in Japan since late 2012. It consists of three arrows: unconventional monetary policy (the first arrow), expansionary fiscal policy (the second arrow), and economic growth strategies to encourage private investment (the third arrow). After the new regime started, both the stock and the foreign exchange markets reacted very favorably. The purpose of this paper is to investigate why the markets reacted to the new regime so favorably. Unlike orthodox arguments, we focus on asymmetric behavior between local and foreign investors after December 2012. We show that under the new regime, foreign investors were aggressive in purchasing Japanese stocks and in selling the Japanese yen, while local investors were not. By using high frequency intra-daily data, both structural break tests and regression analysis show that various news shocks had more significant impacts on the stock prices and exchange rates in nighttime than in daytime even if they were revealed in daytime. Noting that local investors tend to trade in daytime, while foreign investors tend to trade in nighttime, this implies that more dramatic market responses to the new regime happened in time zones when foreign investors were active. However, the asymmetry became less significant after the market crash on May 23, 2013.

Suggested Citation

  • Fukuda, Shin-ichi, 2015. "Abenomics: Why was it so successful in changing market expectations?," Journal of the Japanese and International Economies, Elsevier, vol. 37(C), pages 1-20.
  • Handle: RePEc:eee:jjieco:v:37:y:2015:i:c:p:1-20
    DOI: 10.1016/j.jjie.2015.05.006
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fukuda, Shin-ichi, 2017. "Spillover Effects of Japan’s Quantitative and Qualitative Easing on East Asian Economies," ADBI Working Papers 631, Asian Development Bank Institute.
    2. repec:eee:jimfin:v:74:y:2017:i:c:p:337-352 is not listed on IDEAS
    3. Shin-ichi Fukuda & Tsutomu Doita, 2016. "Unconventional Monetary Policy and its External Effects: Evidence from Japan's Exports," The Developing Economies, Institute of Developing Economies, vol. 54(1), pages 59-79, March.
    4. Bhanupong Nidhiprabha, 2016. "Impacts of Quantitative Monetary Easing Policy in the United States and Japan on the Thai Economy," The Developing Economies, Institute of Developing Economies, vol. 54(1), pages 80-102, March.
    5. Shioji, Etsuro, 2015. "Time varying pass-through: Will the yen depreciation help Japan hit the inflation target?," Journal of the Japanese and International Economies, Elsevier, vol. 37(C), pages 43-58.
    6. repec:eee:japwor:v:44:y:2017:i:c:p:26-34 is not listed on IDEAS
    7. KIMURA Yosuke, 2017. "Heterogeneous Investor Behaviors and Market Volatility in the Tokyo Stock Exchange," Discussion papers 17003, Research Institute of Economy, Trade and Industry (RIETI).
    8. repec:eee:jjieco:v:45:y:2017:i:c:p:13-26 is not listed on IDEAS
    9. Kano, Takashi & Wada, Kenji, 2017. "The first arrow hitting the currency target: A long-run risk perspective," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 337-352.

    More about this item

    Keywords

    Unconventional policy; Structural break; Stock price; Exchange rate; Intra-daily data;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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