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A Yen is Not a Yen: TIBOR/LIBOR and the Determinants of the Japan Premium

Published online by Cambridge University Press:  06 April 2009

Vicentiu Covrig ,
Buen Sin Low  and
Michael Melvin
Vicentiu Covrig
Affiliation:
[email protected], School of Business and Economics, California State University, Northridge, CA 91330;
Buen Sin Low
Affiliation:
[email protected], Division of Banking and Finance, Nanyang Technological University, Singapore;
Michael Melvin
Affiliation:
mmelvin@asu. edu, Department of Economics, Arizona State University, Tempe, AZ 85287.
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Abstract

Pricing in the euroyen market is based on LIBOR, the London Interbank Offered Rate, set at 11:00AM London time or TIBOR, the Tokyo Interbank Offered Rate, set at 11:00AM Tokyo time. The changing TIBOR-LIBOR spread reflects the credit risk associated with Japanese banks or the “Japan premium”. The spread is modeled as a function of determinants of bank default and firm value. Systematic variation in the spread can be explained by interest rate and stock price effects along with public information flows of good and bad news regarding Japanese banking, with a separate role for bank credit downgrades and upgrades.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 1 , March 2004 , pp. 193 - 208
Copyright
Copyright © School of Business Administration, University of Washington 2004

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