Macroeconomic Effects and Spillovers from Bank of Japan Unconventional Monetary Policy

We provide empirical evidence on the impact of the Bank of Japan’s unconventional monetary policies on domestic economic variables and their spillovers to international sovereign yields. Using high-frequency asset price surprises to Bank of Japan (BOJ) policy announcements, we identify shocks to forward guidance (FG) and large-scale asset purchase (LSAP) policies. We show that expansionary LSAP and FG shocks increase Japanese activity and stock prices, lower unemployment, and depreciate the yen. We find that FG and LSAP shocks produce spillovers to sovereign bond yields in other countries. Spillovers from BOJ LSAP shocks seem to transmit through term premia, and the strength of spillovers is strongest to those markets where Japanese investors have a larger participation.