Data-driven monetary policy: Evidence from the Bank of Japan’s equity purchase program

Zechu Liu, Christina Sklibosios Nikitopoulos, Kenny Phua and Jianxin Wang

Pacific-Basin Finance Journal, 2025, vol. 90, issue C

Abstract: Central banks’ monetary policies are increasingly data-driven. To assess the consequences of such monetary policies, we study the equity ETF purchase program of the Bank of Japan (BOJ). We find that BOJ interventions under this program are highly predictable. To exploit this predictability, we design a portfolio strategy that buys (sells) stocks that are more (less) exposed to these interventions. Adjusting for known risk factors, this strategy earns a return of 12.90% per annum. BOJ interventions have a more positive impact on riskier stocks. Thus, the ETF purchase program aligns with the BOJ’s goals of reducing equity risk premium by offering downside protection during periods of market uncertainty.

Keywords: Data-driven policies; Monetary policy; Equity market intervention; Price pressure; Bank of Japan (search for similar items in EconPapers)
JEL-codes: E44 E52 G12 G17 G18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24003676

DOI: 10.1016/j.pacfin.2024.102615

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