Economic policy uncertainties and business confidence in Japan

Although the literature on the determinants of business confidence and the literature addressing the effects of economic policy uncertainty are growing, some gaps still exist. This study analyzes the effects of economic policy uncertainties on business confidence in an important developed country and one of the main Asian economies, Japan. In addition to economic policy uncertainty, the study is the first to examine whether monetary policy uncertainty and fiscal policy uncertainty have different effects on business confidence in Japan. The data runs from March 1987 to February 2022. All relationships are analyzed considering three samples: one related to the total period, one that disregards the Covid-19 pandemic, and another that goes until the subprime crisis. The results are based on different econometric methods. The findings reveal that Economic policy uncertainty adversely affect business confidence in Japan. The results also reveal that fiscal and monetary policy uncertainties deteriorate business confidence. In addition, estimates obtained from quantile regression suggest economic policy uncertainties affect business confidence more when businessmen are less confident than when they are more confident.