Impacts of Japan’s negative interest rate policy on Asian financial markets

• DOI: http://doi.org/10.1111/1468-0106.12253
• Author: Shin‐ichi Fukuda
• Date: 01 February 2018
• Published date: 01 February 2018

SPECIAL ISSUE ARTICLE

Impacts of Japan’s negative interest rate policy

on Asian financial markets

†

Shin-ichi Fukuda

University of Tokyo, Tokyo, Japan

Correspondence

Shin-ichi Fukuda, Faculty of Economics,

University of Tokyo, 7-3-1 Hongo Bunkyo-ku,

Tokyo 113-0033, Japan.

Email: sfukuda@e.u-tokyo.ac.jp

ABSTRACT

This study explores the spillover effects of Japan’s nega-

tive interest rate policy (NIRP) on Asian financial mar-

kets. Unlike quantitative and qualitative monetary easing

(QQE) without a negative interest rate, the NIRP not only

had limited impacts on the Japanese economy but also

raised serious concern about the profitability of local

financial institutions. It is, thus, likely that its spillover

effects were different from those of QQE without a nega-

tive interest rate. In the analysis, we examine the spillover

effects on Asian stock markets. We find that Japan’s

long-term interest rate decline had significantly positive

effects on Asian stock prices in the NIRP period. The

results imply that the NIRP, which lowered the long-term

rate below zero, might have benefitted Asian economies.

We discuss that this might have happened because local

financial institutions that lost their profit opportunities in

domestic markets explored a new profit opportunity in

emerging Asia after the NIRP was announced.

1|INTRODUCTION

After the 2007–2009 global financial crisis (GFC), central banks in advanced countries implemented a

new set of unconventional monetary policies termed quantitative easing, credit easing, forward guidance

policies or negative interest rate policies (NIRP). A number of studies have suggested that these highly

accommodative monetary policies had large spillover effects on the rest of the world, especially on

emerging market economies (EME) (e.g. Bauer & Neely, 2014; Bowman, Londono, & Sapriza, 2014;

Chen, Griffoli, & Sahay, 2014; Fratzscher, Duca, & Straub, 2013; Kleymenova, Rose, & Wieladek,

†

An earlier version of this paper was presented at the ADBI 19th Annual Conference “The Implications of Ultra-Low and

Negative Interest Rates for Asia”on December 1–2, 2016 at ADBI in Tokyo. We would like to thank Ippei Fujiwara, Joshua

Aizenman and Yin-Wong Cheung for their useful comments. This project was supported by JSPS Bilateral Open Partnership

Joint Research Projects and JSPS KAKENHI Grant Number 26285044.

Received: 1 December 2016 Revised: 13 June 2017 Accepted: 1 April 2017

DOI: 10.1111/1468-0106.12253

© 2018 Asian Development Bank Institute (ADBI)

Pacific Economic Review © 2018 John Wiley & Sons Australia, Ltd

Pac Econ Rev. 2018;23:67–79. wileyonlinelibrary.com/journal/paer 67