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Relationship between the yen carry trade and the related financial variables

Author

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  • Hideki Nishigaki

    (MURC)

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's (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.

Suggested Citation

  • Hideki Nishigaki, 2007. "Relationship between the yen carry trade and the related financial variables," Economics Bulletin, AccessEcon, vol. 13(2), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-07m20002
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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume13/EB-07M20002A.pdf
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    References listed on IDEAS

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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, issue May, pages 17-28.
    2. John Cairns & Corrinne Ho & Robert McCauley, 2007. "Exchange rates and global volatility: implications for Asia-Pacific currencies," BIS Quarterly Review, Bank for International Settlements, March.
    3. Michele Cavallo, 2006. "Interest rates, carry trades, and exchange rate movements," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov17.
    4. Gabriele Galati & Michael Melvin, 2004. "Why has FX trading surged?," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. Bruno Thiago Tomio, 2019. "Carry trade in developing and developed countries : a Granger-causality analysis with the Toda-Yamamo to approach," Post-Print halshs-03131073, HAL.
    2. Ali Shehadeh & Peter Erdos & Youwei Li & Michael Moore, 2016. "US Dollar Carry Trades in the Era of "Cheap Money"," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(5), pages 374-404, October.
    3. Bruno Thiago Tomio & Guillaume Vallet, 2021. "Carry Trade and Negative Policy Rates in Switzerland : Low-lying fog or storm ?," Post-Print halshs-03669561, HAL.
    4. Bruno Thiago Tomio, 2020. "Carry trade in developing and developed countries: A Granger causality analysis with the Toda-Yamamoto appr," Economics Bulletin, AccessEcon, vol. 40(3), pages 2154-2164.
    5. Beirne, John & Sugandi, Eric, 2023. "Risk-off shocks and spillovers in safe havens," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    6. Zhang, Ziyun & Chen, Su & Li, Bo, 2022. "Does previous carry trade position affect following investors' decision-making and carry returns?," International Review of Financial Analysis, Elsevier, vol. 80(C).
    7. Matthias Gubler, 2014. "Carry Trade Activities: A Multivariate Threshold Model Analysis," Working Papers 2014-06, Swiss National Bank.

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    JEL classification:

    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • F3 - International Economics - - International Finance

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