The Curious Case of the Yen as a Safe Haven Currency: A Forensic Analysis

By Dennis P Botman, Irineu E de Carvalho Filho, Waikei R Lam

November 6, 2013

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Format: Chicago

Dennis P Botman, Irineu E de Carvalho Filho, and Waikei R Lam. The Curious Case of the Yen as a Safe Haven Currency: A Forensic Analysis, (USA: International Monetary Fund, 2013) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

During risk-off episodes, the yen is a safe haven currency and on average appreciates against the U.S. dollar. We investigate the proximate causes of yen risk-off appreciations. We find that neither capital inflows nor expectations of the future monetary policy stance can explain the yen’s safe haven behavior. In contrast, we find evidence that changes in market participants’ risk perceptions trigger derivatives trading, which in turn lead to changes in the spot exchange rate without capital flows. Specifically, we find that risk-off episodes coincide with forward hedging and reduced net short positions or a buildup of net long positions in yen. These empirical findings suggest that offshore and complex financial transactions should be part of spillover analyses and that the effectiveness of capital flow management measures or monetary policy coordination to address excessive exchange rate volatility might be limited in certain cases.

Subject: Balance of payments statistics, Currencies, Currency markets, Exchange rates, Financial markets, Foreign exchange, Money, Real exchange rates

Keywords: Appreciation, Capital Flows, Currencies, Currency markets, Derivatives, Derivatives markets transaction, Exchange rate, Exchange rates, FX derivatives market, Global, Real exchange rates, Risk-off appreciation, Safe Haven, Safe haven status, WP, Yen, Yen appreciation, Yen Volatility

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/228
Stock No:

WPIEA2013228
ISBN:

9781475513424
ISSN:

1018-5941

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