The Relationship between Exchange Rate and Stock Prices during the Quantitative Easing Policy in Japan

Japan experienced unprecedented recession and deflation for more than 10 years. The Bank of Japan enforced quantitative monetary easing at a level never seen before. One purpose is to influence stock prices for economic recovery. Recently, the Japanese economy has been in recovery, and stock prices have increased. However, there is much dispute over whether quantitative easing has been effective. This paper investigates the relationship between macroeconomic variables and stock prices. Exchange rate is the main target variable and finds that interest rates have not impacted Japanese stock prices but exchange rates and U.S. stock prices have. Furthermore, the Bank of Japan's policy for overcoming recession and deflation has been effective.