How Oil Prices Impact the Japanese and South Korean Economies: Evidence from the stock market and implications for renewable energy
(Previous title) How Oil Prices Impact the Japanese Economy: Evidence from the stock market

Oil prices are volatile. How does this affect Japanese and South Korean firms? To investigate this question, this paper examines how oil prices affect sectoral stock returns. Using Hamilton’s (2014) method to decompose oil prices into portions driven by aggregate demand and by oil supply, the results indicate that both demand- and supply-driven oil price changes impact many sectors in both countries. Large oil price swings will persist due to wars, tariffs, geopolitical events and climate change. These will whipsaw sectors in both countries. To shield their economies from oil price changes, Japan and Korea should expedite the switch from fossil fuels to sustainable energy sources. This paper considers steps to promote this transition.

* This paper was previously circulated under the title "How Oil Prices Impact the Japanese Economy: Evidence from the stock markets," and was revised with new title in March 2025.