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Relationship between the yen carry trade and the related financial variables

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  • Hideki Nishigaki

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    (MURC)

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    Abstract

    Recently, the yen carry trade has been focused on the international financial market. However, there are few empirical studies on the yen carry trade. This paper investigates the relationship between the yen carry trade and the related financial variables in the US and Japan by the structural vector autoregression (SVAR) model. Our estimation results show that the US stock price has a dominant impact on the activity of the speculative yen carry trade. On the other hand, we found that the interest rate differential between Japan and the US does not have a significant impact on the movement of the carry trade. This result shows that the Bank of Japanfs (BOJ) raising the key rate may not make the yen carry trade less attractive. Our results also indicate that if the carry trade unwinds, the depreciation of the dollar against the yen will take place.

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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume13/EB-07M20002A.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 13 (2007)
    Issue (Month): 2 ()
    Pages: 1-7

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    Handle: RePEc:ebl:ecbull:eb-07m20002

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    1. Thomas Klitgaard & Laura Weir, 2004. "Exchange rate changes and net positions of speculators in the futures market," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 17-28.
    2. Michele Cavallo, 2006. "Interest rates, carry trades, and exchange rate movements," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue nov17.
    3. John Cairns & Corrinne Ho & Robert McCauley, 2007. "Exchange rates and global volatility: implications for Asia-Pacific currencies," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, March.
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