Response of Asian Stock Market to Japan's Monetary Policy Uncertainty: a Quantile-On-Quantile Based Evidence

This study investigates the influence of Japan's Monetary Policy Uncertainty (MPU) on Asian developed, emerging, and frontier stock markets from January 2006 to December 2022 using the Quantile-on-Quantile regression. The findings reveal a negative impact of Japan's MPU on stock returns across various countries. However, the strength of this effect varies, underscoring differences in economic policy uncertainty spillover. Notably, the study identifies that the negative impact is more pronounced at higher MPU quantiles and lower stock market return quantiles. Conversely, positive impacts are observed at lower MPU quantiles and higher stock market return quantiles, suggesting that increased uncertainty diminishes returns during bearish trends and enhances returns during bullish trends. Frontier markets exhibit a neutral to positive relationship, with the positive effect more noticeable during bearish conditions and across different MPU quantiles. The robustness of these results has been verified by using the Instrumental Variable Quantile regression (IVQR) model. The findings emphasize the need for policymakers to enhance transparency and communication to mitigate the adverse effects of Japan's MPU on Asian stock markets.