US money announcements and covered interest parity: The case of Japan

This paper examines the effects of US money announcements on dollar-and yen-denominated securities in their respective onshore markets. The effects are consdered over several periods corresponding to possible US and Japanese policy regimes. The consistency of the responses is further examined by testing whether the responses of dollar-denominated securities, yen-denominated securities, the spot yen/dollar exchange rate, and the forward yen/dollar exchange rate violate covered interest parity. Given the results of previous studies, the evidence suggests that restrictions on capital mobility in Japan have not allowed complete international integration of Japanese financial markets.