"The Response of Asset Prices to Abenomics: Is It a Case of Self-Fulfilling Expectations?"
   Japan's Prime Minister, Shinzo Abe, has declared the adoption of a policy package that assigns a key role for aggressive monetary easing by the Bank of Japan—the so-called Abenomics. Since the announcement, the yen has weakened against the dollar by 25% and Nikkei 225 has risen by 40%. In this paper I discuss the backgrounds for such large asset price response. I base the discussion on the theory and empirical analysis of non-conventional monetary policy measures that have been carried out by major central banks so far. I argue that a non-negligible portion of the asset price response seems based on investors' excess optimism concerning the effectiveness of non-conventional monetary policy to stimulate the economy and raise prices. In that sense, there is a good chance that asset prices may go back to previous levels. But I also point out that given that expectations have changed so much, they have a chance of raising inflation to the target rate of 2%, in which case they will have become self-fulfilling.
Year of publication: |
2013-04
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Authors: | Ueda, Kazuo |
Institutions: | Center for International Research on the Japanese Economy (CIRJE), Faculty of Economics |
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