Japanese Yen (JPY) LIBOR rates: technical predictability overview

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Written by Forex Automaton   
Wednesday, 22 October 2008 16:55
Article Index
Japanese Yen (JPY) LIBOR rates: technical predictability overview
JPY LIBOR volatility
JPY LIBOR autocorrelations
JPY LIBOR cross-correlations
Correlations between s/n-o/n and longer term JPY LIBOR
Correlations between 1-week and longer term JPY LIBOR
Correlations between 1-month and longer term JPY LIBOR
Correlations between 3-month and longer term JPY LIBOR
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The original motivation for the technical, mostly correlation-based study of LIBORs was outlined in the USD LIBOR article. After looking at the data for a few currencies, there seems to be more interesting stuff than just the role of LIBORs in controlling the pecking order among the currencies, as you might suspect off the bat. What emerges is the picture of LIBOR action evolving through bursts of volatility. With the intrinsic volatility of LIBORs being higher than that of currencies on the same time scale, the problem of risk, certainly better recognized than that of predictability (recall that the main subject of this research, forex predictability, is "not supposed" to exist in liquid markets), may indeed take the front row sit at the LIBOR show. Perhaps, predictability of risk is a good phrase to discuss the subject matter at hand. Like the USD and EUR LIBOR reports, this document begins with historical LIBOR charts for the Japanese Yen, continues with volatility analysis, and culminates with correlations of logarithmic returns in JPY LIBOR.

Executive summary

JPY LIBORs show great variation of correlation patterns with loan term. Correlations of short-term LIBORs look dominated by singular events; time-dependency analysis is required to tell you more. Autocorrelations of short term LIBOR exhibit the now familiar "bipolar disorder" pattern with the period of one (for s/n-o/n) or a few days (for 1-week LIBOR). The smooth wave-like patterns of intermediate term USD and EUR LIBORs, about 70 days in period, are not found in JPY. As the term duration increases, the main correlation pattern becomes that of positive correlation between different maturity terms as well as inside individual time series (autocorrelation). Longer term maturities are seen to strongly influence the future of the shorter terms in a positively correlated fashion.

LIBOR charts

History of s/n-o/n JPY LIBOR 2002-2008 History of 1 week JPY LIBOR 2002-2008 History of 1-month JPY LIBOR 2002-2008 History of 3-month JPY LIBOR 2002-2008 History of 6-month JPY LIBOR 2002-2008 History of 12-month JPY LIBOR 2002-2008

Fig.1: Historical JPY LIBOR rates charts, top to bottom: s/n-o/n, 1-week, 1-month, 3-month, 6-month and 12-month. Time axis is labeled in MM-YY format.

During the period under consideration, BOJ raised the Basic Discount rate only twice: on July 14, 2006, from 0.10 to 0.40, and on February 21, 2007, from 0.40 to 0.75. Thus the interesting stuff begins in 2006. The "invisible hand" of the market jumps the gun trying to anticipate the course of events almost regularly, to the extent this nervousness must represent a regular and significant speculative opportunity, if the market instruments tied to the LIBOR rates have the same features.



Last Updated ( Thursday, 28 October 2010 11:12 )