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The Broad Yen Carry Trade


  • Masazumi Hattori

    (Deputy Head of Economics Section, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:

  • Hyun Song Shin

    (Professor of Economics, Princeton University (E-mail:


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.

Suggested Citation

  • Masazumi Hattori & Hyun Song Shin, 2007. "The Broad Yen Carry Trade," IMES Discussion Paper Series 07-E-19, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:07-e-19

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    References listed on IDEAS

    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. Darvas, Zsolt, 2009. "Leveraged carry trade portfolios," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 944-957, May.
    2. Ronald McKinnon & Zhao Liu, 2013. "Modern Currency Wars : The United States versus Japan," Finance Working Papers 23714, East Asian Bureau of Economic Research.
    3. OGAWA, Eiji & WANG, Zhiqian, 2014. "How Did the Global Financial Crisis Misalign East Asian Currencies?," Working Paper Series G-1-8, Center for Financial Research, Graduate School of Commerce and Management, Hitotsubashi University.
    4. Bhatti, Razzaque H., 2014. "The existence of uncovered interest parity in the CIS countries," Economic Modelling, Elsevier, vol. 40(C), pages 227-241.

    More about this item


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

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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