The short-term GBP/JPY carry trade

On March 19, 2001, the Japanese government lowered its overnight interest- rate target to 0 percent and has held it at that level for 44 months, which means that traders can borrow the yen and pay no short-term interest. In contrast, Great Britain’s short-term interest rate was 5.75 percent in early March 2001, and has been at least 3.50 percent over the same period.

Therefore, the British pound/Japanese yen has provided a daily rollover payment for buyers since March 2001.

It shows the average daily GBP/JPY performance on each day of the week from March 20, 2001 to October 29, 2004 (935 trading days), and compares each price move to its benchmark move, or typical daily behavior during the same period.

Because the forex market trades 24 hours a day, our Comstock data (via FXtrek) measured each day from 5 p.m. ET to 5 p.m. the next day.

The daily price moves are quite small, but they illustrate interesting patterns. GBP/JPY tended to trade sideways on Monday, lagging its 0.01- percent benchmark. On Tuesday, the currency pair dropped an average -0.03 percent, but Wednesday’s 0.03-percent gain began a modest three-day rally, which beat its benchmark each day and totaled 0.09 percent. It shows the pound/yen posted the largest average daily gain (0.04 percent) on Thursday, and inched 0.02 percent higher on Friday.

It shows each day’s average performance and compares it to its median, benchmark, maximum and minimum values. It also lists each day’s percentage of positive moves. A comparison of the table’s average and median values suggests GBP/JPY’s lackluster performance during the first two days of the week is accurate, but its climb on Wednesday and Thursday might be slightly higher.

For example, the pound/yen’s average is flat on Monday, but its median is -0.04 percent, which suggests a few extreme positive moves skewed the average higher than it should be. Similarly, Wednesday’s and Thursday’s medians are higher than their average values, which suggest the opposite condition.

GBP/JPY’s largest average and median gains (0.04 and 0.09 percent, respectively) as well as its highest probability of gains (57.75 percent) occurred on Thursday.