Research On The Hedge Characteristics Of Japanese Yen

The hedge currency is a sovereignty currency or other asset can hedge systemrisk be held in the international portfolio, its value does not likely to be affected byinternational events including politics and war etc, and having stabilization in the faceof market crisis, so it can by any possibility eludes the impact of system risk andinternational events. The traditional hedge currencies include US dollar and Swissfranc however in the economic crisis2007Japanese yen became the third currencyexcept US dollar and Swiss franc be favored by investors. The analysis result thatcorrelation between yen real effective exchange rate and Russell investment globalindexes proves a significatively negative relationship between yen exchange rate andmacro indexes, and the time series analysis result of yen real effective exchange rateproves a movement of inertia exists on yen exchange rate. There are two elements thatsupport the existence of the hedge characteristics of yen. On the one hand, we have totest the relationship between yen exchange rate and macro indexes to prove whetheror not a significatively negative relationship between them, and accord with thedefinition or elements of the hedge currency. The principle is a foundation to test thehedge characteristics of a currency and also a basic that the hedge currencyfunctionality in real investments. On the other hand, we have to test theautocorrelation or movement of inertia whether or not exist on the yen exchange rateon the premise of the hedge characteristics of yen has been proved. If the movementof inertia exist on the yen exchange rate, the test that the hedge characteristics of yenwould be bias, and we must correct the process and result of the test to improveveracity. The reason of the hedge characteristics of yen is the particularity of Japaneseeconomics, including deflation, expansionary monetary policy and open tradeeconomics. In the long trem, the deflation and expansionary monetary policy are veryimportant to affect the exchange rate of yen. On the one hand, the deflation resulted inthe apprecisated trend of yen than other currencies by PPP, and the yen be held byinvestors are rarely impacted by price fluctuated risk. On the other hand, the centralbanks would adopt expansionary monetary policy designed to stimulate economic growth when economic crisis comes, however Japanese bank can not reduce theinterest rate because the zore-interest rate policy be adopted in the long term. Thedifference in real interest rates between Japan and other countries reduces because thedeflation and zero-interest rate policy, and the apprecisate expection bring on thehedge characteristerics of yen. The relationship between currency exchange rate andopen economics is a very important reason that yen becomes hedge currency. Thecurrent account balance impacts the currency exchange rates. If the domestic currencyapprecisates faster than the foreign currency, the export commodities would be moreexpensive and the import commodities would be cheaply, as a result the net exportand the current account both reduce. The hedge characteristerics of yen nagtivelyimpacts the Japanese economics when economic crisis comes since the apprecisates ofyen deteriorates the Japanese current account balance. The risk hedge strategy of theportfolio is the rationale to achive the functionality of the hedge currency. The risk ofthe hedge currency and other risk are hedged by risk hedge strategy. When economiccrisis comes, the hedge currency apprecisates and it can offset the loss of the equity inthe portfolio. We can evaluate the proformance of the hedge currency by theproformance indexes, and the result of test is that yen can hedge the system risk ineconomic crisis. The hedge characteristics of yen can be used to optimize themanagement of portfolio, and it also can reduce the fluctuation of the return ineconomic crisis. The hedge characteristics of the yen reflect the movementcharacteristics of yen exchanges, and it impacts the economic circumstance byinvestor actions. The investors’ optimism, self-confidence and herd instinct wouldinterfere with the rational judgement of investment, the hedge characteristics of yenwould become uncertainty in real investment. When economic crisis comes, theapprecisation of yen would impacts the Japanese macroeconomics, the structure ofindustry and monetary policy. The experience of yen is very importance for theinternational course of RMB, including the independence of monetary policy, therelationship between currency and trade, and the structure of industry.