QE1 vs. Abenomics: A Channel-Based Comparison of Japan’s Quantitative Easing Attempts
Since 2001, Japan has experienced two extended quantitative easing (QE) periods that
aimed to address its low growth and deflationary environment. This paper investigates the
transmission channels of the country’s QE policies during both periods: QE1 and Abenomics.
Investigating three primary QE channels, signaling, inflation, and safety, the analysis identifies a
signaling channel with different characteristics during both periods, no inflation channel, and a
safety channel with different strengths during both periods. During QE1, event dates signaled
low yields on short- and medium-term bonds but not on long-term bonds, suggesting a weak
signaling channel. In contrast, under Abenomics, the signaling channel was strong for long-term
bonds, reflecting a credible commitment to sustained low interest rates. Event dates in both
periods were associated with deflation, so the evidence does not support the presence of an
inflation channel. Across both periods, a significant safety channel was present. Investors paid a
premium for safe assets that decreased yields as the BOJ purchased bonds, especially during
Abenomics. The findings suggest that Abenomics was more successful at decreasing interest
rates than QE1. Overall, this paper reveals that QE can effectively lower yields through signaling
and safety effects but fails to raise inflation expectations in Japan.
aimed to address its low growth and deflationary environment. This paper investigates the
transmission channels of the country’s QE policies during both periods: QE1 and Abenomics.
Investigating three primary QE channels, signaling, inflation, and safety, the analysis identifies a
signaling channel with different characteristics during both periods, no inflation channel, and a
safety channel with different strengths during both periods. During QE1, event dates signaled
low yields on short- and medium-term bonds but not on long-term bonds, suggesting a weak
signaling channel. In contrast, under Abenomics, the signaling channel was strong for long-term
bonds, reflecting a credible commitment to sustained low interest rates. Event dates in both
periods were associated with deflation, so the evidence does not support the presence of an
inflation channel. Across both periods, a significant safety channel was present. Investors paid a
premium for safe assets that decreased yields as the BOJ purchased bonds, especially during
Abenomics. The findings suggest that Abenomics was more successful at decreasing interest
rates than QE1. Overall, this paper reveals that QE can effectively lower yields through signaling
and safety effects but fails to raise inflation expectations in Japan.
