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The Japan Premium And The Floating-Rate Yen Euromarket

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  • Jonathan Batten
  • Vincentiu Covrig

Abstract

This study investigates the nature of the relationship between the daily offer rates for three-month Euroyen quoted in two markets: Tokyo (TIBOR) and London (LIBOR). We investigate the dynamics of the two series, and the spread between the two series, before and after February 1995. This later period coincides with the sudden deterioration in the credit quality of Japanese rate-setting banks and the introduction of the‘Japan premium’on international borrowings by Japanese issuers following the failure of Hyogo Bank. We conclude that during this period Asia-Pacific borrowers were advised to set floating-rate borrowing agreements to the LIBOR benchmark, even though this added to difficulties in risk management since pricing occurred outside the normal Asian business day. This issue is still relevant with the re-emergence of the‘Japan premium’in international markets.

Suggested Citation

  • Jonathan Batten & Vincentiu Covrig, 2004. "The Japan Premium And The Floating-Rate Yen Euromarket," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 9(3), pages 288-300.
    • Handle: RePEc:taf:rjapxx:v:9:y:2004:i:3:p:288-300
    DOI: 10.1080/1354786042000272964
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    Cited by:

    1. Fukuda, Shin-ichi, 2012. "Market-specific and currency-specific risk during the global financial crisis: Evidence from the interbank markets in Tokyo and London," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3185-3196.
    2. Azad, A.S.M. Sohel & Batten, Jonathan A. & Fang, Victor, 2015. "What determines the yen swap spread?," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 1-13.
    3. Bruce G. Resnick & Gary L. Shoesmith, 2011. "Information Transmission in the World Money Markets," European Financial Management, European Financial Management Association, vol. 17(1), pages 183-200, January.
    4. Yongqi Feng & Tianshu Zhang, 2016. "Interest Rate Linkages between Offshore and Onshore Renminbi Markets," Australian Economic Papers, Wiley Blackwell, vol. 55(4), pages 434-450, December.

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