Is covered interest parity arbitrage extinct? Evidence from the spot USD/Yen

We investigate the long-term covered interest parity (CIP) relationship between the US dollar and the Japanese yen. We find that the CIP relation tends to be one way and favours those with the ability to borrow US dollars. Regression analysis reveals that negative changes in spot exchange rates, positive changes in US interest rates and negative changes in yen interest rates generally affect the deviation from parity. Evidence of declining deviations from equilibrium over the sample period is consistent with a more efficient trading environment