Empirical Study on the Currency Exchange Market. Determinants on the Exchange Rate of the U.S. Dollars and the Japanese Yen by the Regression Analysis.

• Authors: Tokuichi Komiya

Abstracts

EN

It is widely known that in the exchange rate market there are 3 factors influential to determine the currency exchange rate between the related countries in theory; i.e., the interest rate, inflation, and expectation on the exchange rate. This paper aims to find how the exchange rate between U.S. dollar and Japanese Yen, both of which are widely recognized as major currencies in the international financial market, are affected by the 4 key variables selected here in this paper related to these 3 factors under the recent inflationary economic environment; i.e., interest rate yield of the 2 year treasury bond, inflation rate, and the two moving average of the exchange rate to be considered as rational expectation on the movement of the exchange rate. As result it is our discovery that the selected predicator variables have been influential to the daily volatility and monthly movement of the exchange rate of the Japanese Yen /US $ with evidence the two different models of the regression analysis are able to show the exchange rate are significantly correlated with these 4 key variables and strongly affected by them. Also, during the period of total 30 months from the beginning of Y2021 through the middle of Y2023 this empirical analysis has been conducted, neither interest rate parity nor the purchasing power parity, both of which are the well-known theory of the international economy, did hold due to the reason value of U.S. $ have been kept stronger along with continuous increase in the interest rate yield in the U.S than that in Japan to cope with the faster inflation speed in the U.S economy.

Keywords

EN

Yen/$ exchange rate; interest rate differential; consumer price index differential; moving average and regression analysis

• Publisher: Academicus. International Scientific Journal publishing house
• Journal: Academicus. International Scientific Journal
• Year: 2024
• Volume: 15
• Issue: 29
• Pages: 207-239

Dates

published

2024

Contributors

author

Tokuichi Komiya

• Kanaflex Corporation, Vernon Hills, Illinois, USA

• https://orcid.org/000900023214890X

References

• Adam Hayes: Interest Rate Parity Definition, Formula and Example, Investopedia, September 05, 2021. https://www.investopedia.com/terms/i/interestrateparity.asp
• Department of Labor of the U.S. Government: Consumer Price Index Report. https://beta.bls.gov/dataViewer/view/timeseries/ CUUR0000SA0;jsessionid=F19840151E509FFE2E11A8318E8A8829
• Dobromir Dikof: Multiple Linear Regression Analysis in Excel, Magnimetrics, December 7, 2020. https://medium.com/magnimetrics/multiple-linearregression-analysis-in-excel-6f1436acd896
• Elvis Picardo: Using Interest Parity to Trade Forex, Investopedia, October 31, 2021. https://www.investopedia.com/articles/forex/08/interes-rate-parity.asp
• Federal Reserve Press Release, July 26, 2023. https://www.federalreserve.gov/ newsevents/pressreleases/monetary20230726a.htm
• Hai Long Vo and Duc Hong: The purchasing power parity and exchangerate economics half a century on, Journal of Economic Surveys, April 2022. https://doi.org/10.1111/joes.12504
• Investing.Com: Data on U.S. and Japan on the 2-Year Bond Yield. Accessed August 25, 2023 https://www.investing.com/rates-bonds/u.s.-2-year-bond-yield-historicaldata
• Jason Fernando: Moving Average: Purpose, Uses, Formula and Examples, Investopedia, March 31, 2023. –https://www.investopedia.com/terms/m/ movingaverage.asp
• Jean Folger: What is the Relationship between Inflation and Interest Rate, Investopedia, May 18, 2023. https://www.investopedia.com/ask/answers/12/inflation-interest-raterelationship.asp
• Kakuya Kojoh: The First Step Guide to Technical Analysis, The Nippon Technical Analysis Association. https://anyflip.com/meoij/yknz/basic
• Macrotrend: Data on the U.S dollar and Japanese Yen Exchange rate. Accessed August 20, 2023. https://www.investing.com/rates-bonds/u.s.-2-year-bond-yield-historicaldata
• Robert Lafrance and Lawrence Schembri: Purchasing-Power Parity: Definition, Measurement, and Interpretation, Bank of Canada Review, Autumn 2002. https://www.bankofcanada.ca/wp-content/uploads/2010/06/lafrance_e.pdf
• Statement on Monetary Policy, Bank of Japan Press Release, July 28, 2023 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2023/index.htm
• Statistics Bureau of Japan, Ministry of Internal Affairs and Communications in Japan: Consumer Index Report. August, 2023 https://www.stat.go.jp/english/data/cpi/1588.html#his
• Tokuichi (Tony) Komiya: Empirical Studies on US $/Yen Exchange Rates by Rational Expectations Approach, December 1982 (Class paper at Indiana University MBA program).

Identifiers

DOI

10.7336/academicus.2024.29.12

Biblioteka Nauki

23594099