Anatomy of Sudden Yen Appreciations

20 Pages Posted: 28 Jul 2019

See all articles by Fei Han

Fei Han

International Monetary Fund (IMF)

Niklas Westelius

International Monetary Fund (IMF)

Date Written: July 2019

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: Interest rate differential, Interest rate increases, International financial markets, Interest rates, Exchange rate policy, Carry trade, safe haven effects, exchange rate appreciations, Japan, VIX, yen, market uncertainty, Haver, exchange rate movement

JEL Classification: C11, C32, E43, E52, E01, O24, G21, E22, F16

Suggested Citation

Han, Fei and Westelius, Niklas, Anatomy of Sudden Yen Appreciations (July 2019). IMF Working Paper No. 19/136. Available at SSRN: https://ssrn.com/abstract=3427673

Fei Han (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Niklas Westelius

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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