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Reassessing the link between the Japanese yen and emerging Asian currencies

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  • Kim, Bong-Han
  • Kim, Hyeongwoo
  • Min, Hong-Ghi

Abstract

We reassess the degree of exchange rate co-movement between the Japanese yen and five emerging Asian currencies relative to the US dollar in the 2000s. It is often claimed that these currencies have been closely tied with the Japanese yen possibly due to active interactions of Japan and emerging Asian economies. We question the validity of such claims, reporting substantially lower, even negative, dynamic conditional correlations between these currencies and the yen-dollar exchange rate in the second half of the 2000s. Our novel multivariate GARCH framework identifies the liquidity deterioration, measured by the TED spread, and the elevated risk aversion, measured by the sovereign CDS premium, in international capital markets as the two major driving forces of such decoupling phenomena.

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  • Kim, Bong-Han & Kim, Hyeongwoo & Min, Hong-Ghi, 2013. "Reassessing the link between the Japanese yen and emerging Asian currencies," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 306-326.
  • Handle: RePEc:eee:jimfin:v:33:y:2013:i:c:p:306-326
    DOI: 10.1016/j.jimonfin.2012.11.021
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    More about this item

    Keywords

    Yen-dollar exchange rate; Emerging Asian currencies; Dynamic conditional correlation; DCCX-MGARCH;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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