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

_IMF Working Papers, November 6, 2013_

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## Bibliographic details
- Authors: Dennis P Botman, Irineu E de Carvalho Filho, Waikei R Lam
- Published: November 6, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475513424.001

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### Summary and central finding
- During risk-off episodes, the yen is a safe haven currency and on average appreciates against the U.S. dollar.
- The proximate causes of yen risk-off appreciations are investigated.
- Neither capital inflows nor expectations of the future monetary policy stance can explain the yen’s safe haven behavior.
- Changes in market participants’ risk perceptions trigger derivatives trading, which in turn lead to changes in the spot exchange rate without capital flows.
- Risk-off episodes coincide with forward hedging and reduced net short positions or a buildup of net long positions in yen.

### Empirical findings and mechanisms
- No explanatory role found for capital inflows in yen risk-off appreciations.
- No explanatory role found for expectations of future monetary policy stance.
- Evidence points to derivatives trading as the transmission from risk perception changes to spot exchange rate moves, operating without associated capital flows.
- Specific derivatives-market behaviors observed during risk-off episodes:
  - Forward hedging.
  - Reduced net short positions in yen.
  - Buildup of net long positions in yen.

### Policy implications and recommendations
- Offshore and complex financial transactions should be part of spillover analyses.
- The effectiveness of capital flow management measures might be limited in certain cases when derivatives-driven moves dominate.
- Monetary policy coordination to address excessive exchange rate volatility might be limited in certain cases when the mechanism is derivatives trading rather than capital flows.

### Subjects and keywords
- Subjects: 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

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## Content in this bundle

- **The yen as a safe-haven: mechanisms, evidence, and policy implications**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-curious-case-of-the-yen-as-a-safe-haven-currency-a-forensic-analysis-41039_