Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/66907
Authors: 
Winters, Corinne
Year of Publication: 
2008
Series/Report no.: 
Bank of Canada Discussion Paper 2008-2
Abstract: 
In this paper, the author considers whether fundamentals or other factors can explain the yen's ongoing weakness. In particular, the importance of capital outflows due to the carry trade and longer-term portfolio investment outflows, which may be delaying the adjustment of the yen, are investigated. A simple portfolio model is developed, composed of a speculative component and a minimum variance portfolio, to address the underlying motivation for capital outflows from Japan over the past ten years. The author's main findings suggest that a substantial portion of outflows may be attributed to diversification. Furthermore, given that considerable home bias remains in Japanese households' portfolios, the results suggest that capital outflows from households, largely driven by diversification, may continue to dampen a long-run appreciation of the yen going forward. That said, evidence of substantial speculative outflows, through carry trades, complicates the outlook for the yen.
Subjects: 
Exchange rates
International topics
Recent economic and financial developments
JEL: 
F21
F31
F32
G11
Document Type: 
Working Paper
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