Policy uncertainty in Japan

Elif C. Arbatli Saxegaard, Steven Davis, Arata Ito and Naoko Miake

Journal of the Japanese and International Economies, 2022, vol. 64, issue C

Abstract: We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards, building on Baker et al. (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters, and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates, and interest rates and with a survey-based measure of political uncertainty. It rises around contested national elections and major leadership transitions in Japan, during the Asian financial crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, the deferral of a consumption tax hike, and the onset of the COVID-19 pandemic. Our uncertainty indices for fiscal, monetary, trade, and exchange rate policy co-vary positively but also display distinct dynamics. For example, our trade policy uncertainty (TPU) index rocketed upwards when the U.S. withdrew from the Trans-Pacific Partnership. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan's macroeconomic performance, as reflected by impulse response functions for investment, employment, and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by reducing policy uncertainty.

Keywords: Policy uncertainty; Japan; Economic performance; Aggregate investment (search for similar items in EconPapers)
JEL-codes: D80 E20 E52 E62 F13 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Policy Uncertainty in Japan (2017)
Working Paper: Policy Uncertainty In Japan (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:64:y:2022:i:c:s0889158322000028

DOI: 10.1016/j.jjie.2022.101192

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