Do Macro News Surprises of the US Affect Forex Implied Volatility? The Evidence of Japanese Yen in 1997-2015

This paper investigates the effect of nine scheduled macro news announcements of the US on Japanese Yen’s implied volatility and returns. The findings show that most significant effects of macro news surprises on implied volatility are concentrated in 1997-2006. These effects become weaker or insignificant in subsequent periods, namely 2005-2012 and 2012-2015. Such results suggest that earlier results on modelling the effect of macro news surprise on forex market volatility may be invalid today. The paper also identifies that negative surprises on GDP consistently result in increase in implied volatility. When there is a severely negative surprise on GDP announcement, implied volatility displays a pattern of overreaction at the announcement date and reversal in the next subsequent date.