New banking regulations may be a factor behind the recent breakdown of what was once a "textbook" economic relationship, according to researchers from the Bank of Japan.

Covered interest parity (CIP) is the idea that arbitrage will equalise profits from investing domestically in local currency or abroad via a foreign exchange swap. It held firmly up until the 2008 crisis, broke down briefly and then returned. But in recent years it has begun to break down again.

BoJ economists Tomoyuki Iida