Yen Appreciation and the Identification of Carry Unwinds in Japan

Abstract

Yen appreciation is not a sufficient statistic for a carry unwind. Official intervention, monetary repricing, global-dollar movements and portfolio adjustment can generate similar currency outcomes while implying different funding, duration and target-asset exposures. This paper develops a joint cross-market attribution framework and tests its observable return restrictions using Japanese intervention dates, historical USD/JPY paths, JGB changes, intraday prices and yen-funded AUD, MXN and BRL cash positions. An exact decomposition separates common yen valuation from target-dollar movements and interest accrual. Across ten operation dates in five episodes, twenty-observation average cash payoffs are −1.034%, −1.234% and −1.917%, respectively. The common yen component is −1.449 percentage points, but target components and short-horizon payoff signs differ. Excluding one episode can reverse the AUD and MXN twenty-observation means. Daily and intraday evidence further shows that the return baseline and market clock determine which response is measured. The central conclusion is that exchange-rate-only attribution cannot recover a carry liquidation or a unique policy transmission channel. Joint exposure, horizon and timing restrictions are necessary. The empirical comparisons are descriptive and do not separately identify causal effects of intervention, monetary news or portfolio adjustment.

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