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Data-driven monetary policy: Evidence from the Bank of Japan’s equity purchase program

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  • Liu, Zechu
  • Nikitopoulos, Christina Sklibosios
  • Phua, Kenny
  • Wang, Jianxin

Abstract

Central banks’ monetary policies are increasingly data-driven. To assess the consequences of such monetary policies, we study the equity ETF purchase program of the Bank of Japan (BOJ). We find that BOJ interventions under this program are highly predictable. To exploit this predictability, we design a portfolio strategy that buys (sells) stocks that are more (less) exposed to these interventions. Adjusting for known risk factors, this strategy earns a return of 12.90% per annum. BOJ interventions have a more positive impact on riskier stocks. Thus, the ETF purchase program aligns with the BOJ’s goals of reducing equity risk premium by offering downside protection during periods of market uncertainty.

Suggested Citation

  • Liu, Zechu & Nikitopoulos, Christina Sklibosios & Phua, Kenny & Wang, Jianxin, 2025. "Data-driven monetary policy: Evidence from the Bank of Japan’s equity purchase program," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24003676
    DOI: 10.1016/j.pacfin.2024.102615
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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