ESRI Discussion Paper Series No.334
Does “arbitrage” work well among loans, bonds and stocks?
-The effects of monetary policy on equity finance-

Executive Research Fellow, Economic and Social Research Institute, Cabinet Office
Deputy Director, Policy Evaluation and Public Relations Division, Minister's Secretariat, Cabinet Office
Researcher, Research and Coordination Division, Department of National Accounts, Economic and Social Research Institute, Cabinet Office


This paper examines influence of monetary policy on equity finance through “arbitrage” among various financial assets. It is found that “arbitrage” does not work well since around 2000 between equities and bonds which are directly influenced by monetary policy through banking system. It is possibly because foreign investors who recently increase their presence in Japanese equity market do not “arbitrage” between Japanese equities and bonds.

On the other hand, it is also found that Japanese equity prices have become more sensitive to foreign ones and exchange rates, because foreign investors “arbitrage” between Japanese equities and foreign ones.

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