The International Monetary Fund’s Asia and Pacific Department (APD), in collaboration with economists Yan Carrière-Swallow, Gene Kindberg-Hanlon, and Danila Smirnov, has produced a landmark study titled “Macroeconomic Effects and Spillovers from Bank of Japan Unconventional Monetary Policy.” The working paper, published in November 2025, investigates how the Bank of Japan’s (BOJ) bold and prolonged use of unconventional monetary tools, especially forward guidance and large-scale asset purchases, has influenced both Japan’s economy and global financial markets. Drawing on high-frequency data and methods pioneered by research at the Federal Reserve, European Central Bank, and Bank for International Settlements, the paper quantifies the domestic impacts of Japan’s policy innovations and their spillovers across borders.
Two Decades of Monetary Experimentation
After enduring more than 25 years of low or negative inflation, Japan became a testing ground for monetary innovation. The BOJ first hit the zero-interest-rate bound in 1999 and responded by introducing quantitative easing (QE) in 2001, the earliest of its kind among major central banks. Subsequent programs, “Comprehensive Monetary Easing” in 2010 and “Quantitative and Qualitative Easing (QQE)” in 2013, aimed to expand the monetary base dramatically while pursuing a 2 percent inflation target. When inflation remained elusive, the BOJ added a Negative Interest Rate Policy (NIRP) in 2016 and Yield Curve Control (YCC) to stabilize 10-year bond yields near zero. These measures persisted until 2024, when Japan began to normalize policy, allowing long-term yields to rise and eventually hiking interest rates. This extraordinary sequence of policies offers rare insight into how unconventional tools operate over a long horizon.
Measuring Policy Shocks with Precision
The IMF researchers used a high-frequency event study to pinpoint market reactions to 151 BOJ policy announcements between 2010 and 2023. By analyzing minute-by-minute changes in government bond yields, overnight interest swaps, and the yen–dollar exchange rate, they identified true “policy surprises”, moments when market expectations were upended. These surprises were classified into two categories: forward guidance (FG) shocks, which shift expectations about future short-term rates, and large-scale asset purchase (LSAP) shocks, which directly influence long-term yields. Adapting the methodology of Swanson (2021) to Japan’s context, the authors isolated these shocks and verified that they were not contaminated by new economic information, confirming their independence from other data-driven factors.
Real Effects on Japan’s Economy
When these identified shocks were used as instruments in a structural VAR model covering 1999–2023, the results revealed clear, theory-consistent outcomes. An expansionary LSAP shock, equivalent to a 10-basis-point decline in the 10-year Japanese Government Bond (JGB) yield, led to a rise in industrial production and stock prices, a fall in unemployment, and a mild uptick in core inflation. The yen depreciated, amplifying the stimulative effects through exports. Forward-guidance shocks, defined as a 10-basis-point fall in the one-year JGB yield, produced similar but slightly weaker results, especially on inflation, where the impact was statistically insignificant. These findings imply that Japan’s unconventional policies successfully supported activity and risk-taking even in a low-rate environment. Moreover, the results remained robust after excluding periods when YCC constrained bond yields, underscoring the strength of the identification approach.
Japan’s Global Monetary Footprint
Beyond domestic outcomes, the study delivers the first systematic measurement of international spillovers from BOJ policy actions. Using a daily dataset of 10-year bond yields for 38 advanced and emerging economies, the authors found that both LSAP and forward-guidance shocks had substantial cross-border effects. A 10-basis-point fall in Japanese yields reduced foreign yields by around 5 basis points within days, a spillover magnitude similar to that of the U.S. Federal Reserve and the European Central Bank. These effects persisted over the following week and were consistent across various robustness checks, including the exclusion of countries with restricted capital accounts.
The study traces these global effects to two main channels. The term-premium channel shows that LSAP shocks lower long-term risk compensation, cutting Japan’s term premium by about 12 basis points and the U.S. Treasury term premium by roughly 10 basis points. The portfolio-rebalancing channel highlights how Japan’s massive foreign investment position, over $3 trillion in net assets, transmits policy shocks through investor flows. Countries with higher Japanese holdings of their sovereign bonds, such as Australia, the Netherlands, and Sweden, exhibited stronger yield reactions. Each one-percentage-point increase in Japanese ownership raised spillover intensity by roughly 0.02, emphasizing Japan’s role as a major global creditor shaping international financial conditions.
The Global Echo of Tokyo’s Policies
Japan’s unconventional monetary policies have exerted a meaningful influence at home and abroad. While smaller in scale than U.S. or European programs, BOJ actions have nonetheless affected global bond markets through both price and portfolio channels. The comparable strength of spillovers underscores Japan’s position as a key player in the global monetary system, not just an isolated experiment in deflation management. The authors note that although the volatility of Japanese yields remains far below that of U.S. Treasuries, the reach of BOJ policies rivals that of the world’s most influential central banks. In effect, Japan’s decades-long monetary experiment has transformed it from a policy outlier into a subtle architect of global financial dynamics, proving that even at the zero lower bound, central bank decisions in Tokyo can send waves through markets from Sydney to New York.