Have the Purchases of ETF Raised Stock Prices? Recent Japanese Case

Abstract

The Japanese central bank, the Bank of Japan (BOJ) has introduced a drastic and unprecedented quantitative easing (QE) policy to combat deflation from the 2000s. The BOJ has purchased exchange-traded funds (ETF) as well as huge amounts of domestic governments bonds. This paper investigates the effect of ETF purchases by the BOJ on Japanese stock prices. Empirical results show that the purchases were conducted to prevent decreasing stock prices, however, whether the purchases directly promoted stock prices rising or not is uncertain in the short-run. On the other hand, as stock prices have been increasing since then, the purchases made situations such as preventing a decrease to stock prices and promoting prices in the long-run.