This article connects net Japanese purchases of U.S. Treasury securities and the U.S. 10-year Treasury bond yields to the yen/dollar exchange rate. VAR estimations suggest that a one-time increase in net Japanese purchases has an immediate negative effect on U.S. long bond yields but a short-lived delayed yen depreciation. Further, a one-time increase in the U.S. long yield leads to an immediate yen depreciation. Our results support the hypothesis that Japanese investors, who are major holders of U.S. debt and face extremely low interest rates domestically, influence the dollar/yen rate in a financially integrated world.
Mollick, Andre Varella, and Gokce Soydemir. “The Impact of the Japanese Purchases of U.S. Treasuries on the Dollar/Yen Exchange Rate.” Global Economy Journal 8, no. 1 (January 2008): 1850127. https://doi.org/10.2202/1524-5861.1324.
Global Economy Journal