We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time-varying risk premium consistent with that bias....

The yen carry trade between the US and Japan has existed as a feasible investment strategy in direct violation of the uncovered interest parity (UIP) condition. Using yen-dollar spot and forward exchange rate data from 1993 thorough 2007, I demonstrate that the forward exchange rate quoted in...