Japanese banks, insurance companies, and pension funds are investing in the US and other financial markets, due to the low or even negative interest rates at home. But their demand is pushing up the price of hedging, so when their dollars get converted back into yen, they lose money along the way.

Robert McCauley, senior adviser at the Bank for International Settlements, told the audience at the Asian Development Bank Institute’s Annual Conference 2016 that strong demand by Japanese entities was pushing up the price of yen–dollar swaps, an instrument to hedge foreign investment. In short, it’s becoming more expensive for Japanese investors to get out of yen and into dollar.

Read the transcript

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Know more about ADBI’s work on low interest rates

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