- Yen and Yang: The Response of the Nikkei to the Yen（Federal Reserve Bank of New York）
Since late 2012, around the time of the inception of Abenomics, the yen appears to have played an outsized role. In the chart below, we highlight three specific movements in the Nikkei: (1) the 75 percent rise between November 1 and May 22, (2) the 20 percent fall between May 22 and June 13, and (3) the roughly 15 percent rise since then. According to our baseline estimates, we find that the yen accounted for roughly 60 percent of the initial rise in the Nikkei, and about 45 and 20 percent of the subsequent two movements.
The fact that the yen accounted for such a large share of changes to the Nikkei is informative about how recent monetary policy developments are affecting the Japanese economy, highlighting the role of the exchange rate relative to other channels. We also note that the exchange rate channel seemed particularly important in the initial months of Abenomics, as evidenced by the relatively high share of Nikkei movements attributable to changes in the yen in late 2012 and early 2013.