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Currency intervention and the global portfolio balance effect: Japanese lessons

  • Petra Gerlach-Kristen
  • Robert N McCauley

This paper shows that the Japanese foreign exchange interventions in 2003/04 seem to have lowered long-term interest rates in a wide range of countries, including Japan. It seems that this decline was triggered by the investment of the intervention proceeds in US bonds and that a global portfolio balance effect spread the resulting decline in US yields to other bond markets, thus easing global monetary conditions.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 389.

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Length: 17 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:bis:biswps:389
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  1. Watanabe, Tsutomu & Yabu, Tomoyoshi, 2013. "The great intervention and massive money injection: The Japanese experience 2003–2004," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 428-443.
  2. Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc.
  3. Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, 04.
  4. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary policy alternatives at the zero bound: an empirical assessment," Finance and Economics Discussion Series 2004-48, Board of Governors of the Federal Reserve System (U.S.).
  5. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
  6. Robert McCauley & Guorong Jiang, 2004. "Diversifying with Asian local currency bonds," BIS Quarterly Review, Bank for International Settlements, September.
  7. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
  8. Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
  9. Robert McCauley, 2005. "Distinguishing global dollar reserves from official holdings in the United States," BIS Quarterly Review, Bank for International Settlements, September.
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