Work in progress, first draft, October 2026
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Abstract
Does Bank of Japan policy reach US financial conditions? Japan is the largest foreign holder of US long-term bonds, and its policy has shifted since December 2022. I construct level and risk financial-conditions factors for Japan and the US, estimate BOJ monetary policy shocks, and use them to instrument Japanese financial conditions. Over the full sample I find no significant transmission to the US. After the BOJ widened its yield-curve-control band in December 2022, however, the Japanese level factor moves the US level factor, consistent with portfolio rebalancing, and the US risk factor, consistent with a carry-trade unwind. Transmission from Japanese to US risk is not significant. The results rest on a short post-2022 sample and on shocks constructed from daily data.