The Effects of Quantitative Easing Policy on Bank Lending : Evidence from Japanese Regional Banks

To deal with the deep recession since the asset bubble burst in the early 1990s, the Bank of Japan (BOJ) adopted numerous unconventional policy measures, such as zero-interest-rate policy, quantitative easing, and yield curve control, ahead of other countries. Moreover, the BOJ has been pursuing qualitative and quantitative easing (QQE) since April 2013 to raise the annual inflation rate and end the prolonged deflation. Using half-yearly bank-level data from 2008 to 2020, this paper investigates the effects of QQE on regional bank lending in Japan. Although regional banks play an important role in supporting the regional economy, rural loan demand has been declining due to a shrinking and aging population. We found that the BOJ’s purchase of government bonds has a positive impact on regional bank lending, implying the existence of a bank lending channel in the transmission of unconventional monetary policy. In terms of bank characteristics, the magnitude of the impact is greater for large-sized regional banks and those with a lower market share. Consistent results are obtained from the Granger causality tests