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Federal Reserve Bank of San Francisco
Working Paper Series
Quantitative easing and Japanese bank equity values
Takeshi Kobayashi
Mark M. Spiegel
Nobuyoshi Yamori

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.

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Takeshi Kobayashi & Mark M. Spiegel & Nobuyoshi Yamori, Quantitative easing and Japanese bank equity values, Federal Reserve Bank of San Francisco, Working Paper Series 2006-19, 2006.
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Keywords: Monetary policy - Japan ; Bank of Japan ; Banks and banking - Japan
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