Quantitative Easing and Japanese Bank Equity Values

FRB of San Francisco Working Paper No. 2006-19

47 Pages Posted: 26 Jul 2007

See all articles by Takeshi Kobayashi

Takeshi Kobayashi

Chukyo University

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration

Date Written: July 2006

Abstract

One of the primary motivations offered by the Bank of Japan (BOJ) for its quantitative easing program - whereby it maintained a current account balance target in excess of required reserves, effectively pegging short-term interest rates at zero - was to maintain credit extension by the troubled Japanese financial sector. We conduct an event study concerning the anticipated impact of quantitative easing on the Japanese banking sector by examining the impact of the introduction and expansion of the policy on Japanese bank equity values. We find that excess returns of Japanese banks were greater when increases in the BOJ current account balance target were accompanied by "nonstandard" expansionary policies, such as raising the ceiling on BOJ purchases of longterm Japanese government bonds. We also provide cross-sectional evidence that suggests that the market perceived that the quantitative easing program would disproportionately benefit financially weaker Japanese banks.

Keywords: Bank of Japan, monetary policy

JEL Classification: E44, G18, G21

Suggested Citation

Kobayashi, Takeshi and Spiegel, Mark M. and Yamori, Nobuyoshi, Quantitative Easing and Japanese Bank Equity Values (July 2006). FRB of San Francisco Working Paper No. 2006-19, Available at SSRN: https://ssrn.com/abstract=1003055 or http://dx.doi.org/10.2139/ssrn.1003055

Takeshi Kobayashi

Chukyo University ( email )

101-2 Yagoto Honmachi
Showa-ku
Nagoya-shi, Aichi-ken, 466-8666
Japan

Mark M. Spiegel (Contact Author)

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

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