Foreign Exchange Intervention and Exchange Rate Exposure: Evidence from South Africa and Japan

This paper investigates how central bank forex interventions impact exchange rate exposure in equity markets, comparing South Africa (an emerging market) and Japan (a developed economy). Using Kalman filter to estimate time-varying exchange rate exposure and quantile regression to assess the relationship, the findings show that interventions generally reduce the absolute level of exchange rate exposure. Specifically, in South Africa, negative interventions significantly lower exposure at the median level, while in Japan, similar interventions are associated with higher exposure at the upper quantiles. The paper also notes that the effect of these interventions does not depend on whether the exchange rate is depreciating or appreciating, and it highlights the critical role of clear, credible communication from policymakers in helping firms manage currency risks.