YCC, carry trades and the changing role of the yen
As the BoJ adjusts its policy regime, changes in carry positioning are increasing instability in the correlation between exchange rates and yield differentials, argues economist
Interest rates have been rising in Japan while the yen has remained weak. This apparent anomaly signals a decoupling between exchange rates and yield differentials – a relationship that traditionally represents one of the main channels through which monetary policy affects foreign exchange markets.
In standard portfolio frameworks, higher domestic yields may, all other things being equal, coincide
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