Firms’ economic growth expectations and reactions to micro and macro news in Japan

This study investigates whether firms' expectations of aggregate output growth overreact or underreact to micro and macro news by examining firm surveys conducted by a Japanese newspaper company, Nikkei. We capture micro news measured by forecast revisions and macro news measured by a new variable, the Japanese government's growth forecast and that of professional forecasters' consensus. We found that firms' economic growth expectations overreact only to macro news. Our results indicate the heterogeneity of firm expectations formation across target variables and news types. Our findings suggest that firms excessively rely on government forecasts in turbulent times. The overreaction of firms' output growth expectations to the government's forecast may be associated with their lower performance, and that the government's macroeconomic forecasts play a role in macroeconomic performance through firms' expectation channels.