Unconventional monetary policy and inequality: is Japan unique?

Unconventional monetary policy (UMP) influences inequality through two channels that work in opposite directions - a labour market channel (more employment, higher wages) and a financial market channel (higher asset prices). In an earlier paper, covering UMP through 2014, we found that UMP in Japan had contributed to greater income inequality through its effects on asset prices. With a longer time period, a richer dataset including labour market data, and a structural vector autoregression (SVAR) we confirm that these results continue to hold, and investigate why UMP's impact on inequality in Japan differs from some other countries. We argue that Japanese structural issues may mute the labour market channel, especially: (i) labour market rigidity; and (ii) the large share of the population that is older than 65 years old or retired. The older cohort's capital gains and dividends are re-saved in other financial assets, instead of being consumed or used for starting businesses. At the same time, wages have not increased despite the severe labour shortage, due to the frictions in Japan's labour market. We conclude that these factors may make the inequality created by UMP in Japan unique by international comparison.