The Japan Premium and the Floating-Rate Yen Euromarket

Information Transmission in the World Money Markets

“…They attribute this to markets becoming more integrated and less regulation. Using 3-month daily data, Batten and Covrig (2004) find that EY TIBOR and yen LIBOR were cointegrated during the January 1988-February 1995 subperiod, but not during their subsequent subperiod, February 1995-July 1999 There are fewer intra-market causality studies. One notable study using recent data is Wang et al (2007) who study interest rate linkages among eight Eurocurrencies (US dollar, Canadian dollar, Japanese yen, UK pound, German mark, French franc, Italian lira, and Swiss franc) over the January 1994 to December 1998 period and six Eurocurrencies (US dollar, Canadian dollar, Japanese yen, UK pound, euro, and Swiss franc) over the January 1999 to December 2002 period.…”

“…They attribute this to markets becoming more integrated and less regulation. Using 3‐month daily data, Batten and Covrig (2004) find that EY TIBOR and yen LIBOR were cointegrated during the January 1988‐February 1995 subperiod, but not during their subsequent subperiod, February 1995‐July 1999 5…”

What determines the yen swap spread?

“…Ignoring the dynamics of the correlation structure between underlying interest rates can also lead to serious errors in the pricing model and hedging decisions. Covrig, Low, and Melvin (2004) and Batten and Covrig (2004) show that skewness risk is present in the short end of the Japanese yield curve, due to pricing distortions associated with the difference between TIBOR and LIBOR interest rates (the Tokyo Interbank Offer Rate and the London Interbank Offer Rate respectively) for unsecured deposits. Thus, determining whether skewness risk is also priced into yen swap spreads is especially important for those market participants who use TIBOR, or LIBOR, based futures contracts to arbitrage, or hedge, the floating rate side of yen interest rate swaps.…”

Market-specific and currency-specific risk during the global financial crisis: Evidence from the interbank markets in Tokyo and London

“…As for the integration between the London and Tokyo interbank markets, numerous studies investigated a source of upward deviations of TIBOR from LIBOR in the late 1990s (see, among others, Hanajiri [1999], Batten and Covrig [2004], Covrig, Low, and Melvin [2004], Ito and Harada [2004], Peek and Rosengren [2001]). Galpin, Resnick, and Shoesmith (2009) found a strong positive relationship of risk premiums in LIBOR, SIBOR (Singapore Interbank Offered Rate) and TIBOR, while Fukuda (2011) explored how the relationship changed over two decades for various Asian interbank rates.…”