This paper, using daily data, sets out to present an empirical analysis of the relationship between recent Japanese stock prices and macroeconomic variables under the quantitative easing policy in Japan.
The theoretical framework of the analysis is provided followed by application of the empirical method and analysis of the deterministic elements of stock prices in Japan. Vector error correction method is applied.
The results indicate that interest rates, especially the domestic interest rate, have not impacted Japanese stock prices. Exchange rates also have not been a significant determinant of Japanese stock prices. US stock prices have significantly influenced Japanese stock prices. Moreover, there exists a long‐term stable relationship between Japanese and US stock market prices.
The Bank of Japan's monetary policy, especially quantitative monetary easing, has not yet been fully determined. The effect of the policy on stock prices has not been discussed at all. Analyzing this effect is important because of its impact on the Japanese economic recovery, which has prevailed for more than ten years. Moreover, little research exists on the effect of the exchange rate on stock prices. This paper uses daily data. Some past studies on this topic have used quarterly or monthly data.
