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An assessment of the impact of Japanese foreign exchange intervention: 1991-2004

Author

Listed:
  • Alain P. Chaboud
  • Owen F. Humpage

Abstract

We analyze the short-term price impact of Japanese foreign exchange intervention operations between 1991 and 2004, using official data from Japan's Ministry of Finance. Over the period as a whole, we find some evidence of a modest "against the wind" effect, but interventions do not have value as a forecast that the exchange rate will move in a direction consistent with the operations. Interventions conducted between 1995 and 2002, which were large and infrequent, met with a much higher degree of success. For the most recent episode of intervention, in 2003 and 2004, despite the record size and frequency of the overall episode, it is difficult to statistically distinguish the pattern of exchange rate movements on intervention days from that of all the days in that particular subperiod, showing little effectiveness. Still, while the evidence of Japanese intervention effectiveness is modest overall, it appears to be stronger than that found using similar techniques for U.S. intervention operations conducted in the 1980s and 1990s.

Suggested Citation

  • Alain P. Chaboud & Owen F. Humpage, 2005. "An assessment of the impact of Japanese foreign exchange intervention: 1991-2004," International Finance Discussion Papers 824, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:824
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    References listed on IDEAS

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    1. Fatum, Rasmus & Hutchison, Michael, 2006. "Effectiveness of official daily foreign exchange market intervention operations in Japan," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 199-219, March.
    2. Humpage, Owen F., 2000. "The United States as an informed foreign-exchange speculator," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 287-302, December.
    3. Humpage, Owen F, 1999. "U.S. Intervention: Assessing the Probability of Success," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 731-747, November.
    4. Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December.
    5. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
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    13. Ito, Takatoshi & Yabu, Tomoyoshi, 2007. "What prompts Japan to intervene in the Forex market? A new approach to a reaction function," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 193-212, March.
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    Cited by:

    1. Hertrich Markus, 2016. "The Costs of Implementing a Unilateral One-Sided Exchange Rate Target Zone," Review of Economics, De Gruyter, vol. 67(1), pages 91-120, May.
    2. Fatum, Rasmus & Hutchison, Michael M., 2010. "Evaluating foreign exchange market intervention: Self-selection, counterfactuals and average treatment effects," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 570-584, April.

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    Keywords

    Foreign exchange administration - Japan;

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