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The Broad Yen Carry Trade

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Author Info

  • Masazumi Hattori

    (Deputy Head of Economics Section, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: masazumi.hattori@boj.or.jp))

  • Hyun Song Shin

    (Professor of Economics, Princeton University (E-mail: hsshin@princeton.edu))

Abstract

Yen carry trades have traditionally been viewed in narrow terms purely as a foreign exchange transaction. However, evidence from the waxing and waning of balance sheets of foreign banks operating in Japan points to a broader notion of the carry trade. Yen liabilities fund not only pure currency carry trades, but also fund the general increase in balance sheets of hedge funds and financial intermediaries. The difference in overnight rates across countries is a crucial determinant of balance sheet changes. Domestic monetary policy thus has a global dimension.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 07-E-19.

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Date of creation: Oct 2007
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Handle: RePEc:ime:imedps:07-e-19

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Keywords: Yen carry trade; liquidity; risk appetite; monetary policy;

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References

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  1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  2. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and financial cycles," BIS Working Papers 256, Bank for International Settlements.
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Cited by:
  1. McKinnon, Ronald & Liu, Zhao, 2013. "Modern Currency Wars: The United States versus Japan," ADBI Working Papers 437, Asian Development Bank Institute.
  2. Darvas, Zsolt, 2009. "Leveraged carry trade portfolios," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 944-957, May.

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