Anatomy of Sudden Yen Appreciations

Fei Han and Niklas Westelius

No 2019/136, IMF Working Papers from International Monetary Fund

Abstract: The yen is an important barometer for the Japanese economy. Depreciations are typically associated with favorable economic developments such as increased corporate profits, rising equity prices, and upward pressure on domestic consumer prices. On the other hand, large and sharp appreciations run the risk of lowering actual and expected inflation, squeezing corporate profits, generating a negative wealth effect through depressed equity prices, and reducing confidence in the Bank of Japan’s efforts to reflate the domestic economy and achieve the inflation target. This paper takes a closer look at underlying drivers of rapid yen appreciations, highlighting the key role of carry-trade and the zero lower bound as important amplifiers.

Keywords: WP; carry trade; yen; yen appreciation; appreciation; carry trade reversal; safe haven effects; exchange rate appreciations; Japan; carry trade position; carry trade activity; interest rate differential; Exchange rates; Currencies; Vector autoregression; Futures; Zero lower bound; Global (search for similar items in EconPapers)
Pages: 19
Date: 2019-07-01
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Citations: View citations in EconPapers (4)

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