Do the dynamics of macroeconomic attention drive the yen/dollar exchange market volatility?

With financial liberalization and economic globalization, international trade balance has become an important channel to increase a country's fiscal revenue. To facilitate global trade, exchange rate markets are an indispensable means of currency circulation, and research on volatility is also a hot topic worldwide. To reveal the impact of different types of macroeconomic fundamentals on foreign exchange market volatility, this study uses eight fundamental indicators for macroeconomic attention indices (MAIs) proposed by Fisher et al. (2022) to explore their impact on the volatility of the yen/dollar rate while considering the asymmetric case of short-term volatility. The results show that the dynamics of the MAIs affect yen/dollar rate volatility, with almost all the MAIs having significantly positive coefficients. The results of the MCS test confirm that considering both asymmetric effects and MAI information improves the predictive accuracy of the model. This result is robust to alternative tests, alternative sample lengths, and alternative MAI indicators. Overall, the empirical results highlight the value of incorporating asymmetric effects and MAI indicators in forecasting yen/dollar rate volatility. This finding is of self-evident importance for promoting the balance of payments, regulating currency flows, and developing a country's economy.