Yutaka Kurihara

Correspondence: Yutaka Kurihara, kurihara@vega.aichi-u.ac.jp

Department of Economics, Aichi University, Japan

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Abstract

This paper examines whether stock prices in Japan show indicator properties for the US-Japan exchange rate using an exchange rate premium model for the short-term. Empirical results show that changes in short-term interest rate flows, stock index differentials (US-Japan), and exchange rate premiums (Japanese yen/US dollar) exhibit consistent indicator properties for Japanese stock prices. The findings provide support for the arguments that financial variables exhibit indicator properties for exchange rate dynamics. In uncovered interest rate parity, there is a premium; however, the premium affects the spot exchange rate significantly. Exchange rates from the 2000s are determined by financial assets and show a strong difference from the 1990s.

Keywords:

  Asset prices; Exchange rates; Premium; Stock prices

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