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The Response of Asset Prices to Abenomics: Is It a Case of Self-Fulfilling Expectations?

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  • Kazuo Ueda

    (Faculty of Economics, University of Tokyo)

Abstract

　　 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.

Suggested Citation

  • Kazuo Ueda, 2013. "The Response of Asset Prices to Abenomics: Is It a Case of Self-Fulfilling Expectations?," CIRJE F-Series CIRJE-F-885, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2013cf885
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    References listed on IDEAS

    as
    1. Eric T. Swanson & John C. Williams, 2014. "Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates," American Economic Review, American Economic Association, vol. 104(10), pages 3154-3185, October.
    2. Cúrdia, Vasco & Woodford, Michael, 2011. "The central-bank balance sheet as an instrument of monetarypolicy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 54-79, January.
    3. Kazuo Ueda, 2012. "Deleveraging and Monetary Policy: Japan since the 1990s and the United States since 2007," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 177-202, Summer.
    4. Kazuo Ueda, 2012. "Japan's Deflation and the Bank of Japan's Experience with Nontraditional Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 175-190, February.
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    Cited by:

    1. Urszula Szczerbowicz, 2015. "The ECB Unconventional Monetary Policies: Have They Lowered Market Borrowing Costs for Banks and Governments?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 91-127, December.
    2. Dong He & Robert N McCauley, 2013. "Transmitting Global Liquidity to East Asia: Policy Rates, Bond Yields, Currencies and Dollar Credit," Working Papers 152013, Hong Kong Institute for Monetary Research.

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