Policy announcement and credit risk: zero interest rate policy and quantitative monetary easing policy

This paper examines how changes in the Bank of Japan (BOJ)'s monetary policy stance affect credit risks during the non-traditional monetary policy period. We divide its policy period into the zero interest rates policy (ZIRP) and the quantitative monetary easing policy (QMEP) to compare each policy effect. First, we find that the introductions of both the ZIRP and the QMEP lower the 20-year credit risk. Moreover, the QMEP lowers the 10-year credit risk. Next, it is found that the credit risks increase after the termination of ZIRP but decrease after it of QMEP. The market response on the policy announcement of the termination of the easing monetary policy is different.