Public Signal Discounting: Fiscal Policy, Exchange Rates, and Firm-Level Decisions in Japan

Yasuharu Iwata

MPRA Paper from University Library of Munich, Germany

Abstract: Despite large-scale fiscal stimulus amid constrained monetary policy, Japan did not emerge from its prolonged deflationary period until sharp yen depreciation took hold. Using firm-level data, this paper examines the role of public signals in firms' expectation formation and decisions, with a focus on fiscal stimulus announcements and exchange rate dynamics. We find that growth and inflation expectations underreact to fiscal signals, resulting in only a negligible effect on investment and pricing decisions. Yen movements are driven primarily by time-varying risk premia, and depreciation expectations play no independent role in firm decisions. Firms respond mainly to realized exchange rate outcomes and expected cost conditions, consistent with Japan's recent cost-push-driven emergence from deflation.

Keywords: Survey data; Expectation formation; Fiscal policy; Zero lower bound; Uncovered interest parity; Safe-haven currency (search for similar items in EconPapers)
JEL-codes: D84 E62 F31 (search for similar items in EconPapers)
Date: 2026-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/129006/1/MPRA_paper_129006.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:129006

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().