Forex Research Papers

Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan

Rasmus Fatum, Michael Hutchison

NBER Working Paper No. 9648
Issued in April 2003
NBER Program(s):International Finance and Macroeconomics

Japanese official intervention in the foreign exchange market is of by far the largest magnitude in the world, despite little or no evidence that it is effective in moving exchange rates. This paper investigates the effectiveness of intervention using recently published Japanese official daily data and an event study methodology. Focusing on daily Japanese and US official intervention operations, we identify separate intervention episodes' and analyze the subsequent effect on the exchange rate. Using the non-parametric sign test and matched-sample test, we find strong evidence that sterilized intervention systemically affects the exchange rate in the short-run (less than one month). This result holds even when intervention is not associated with (simultaneous) interest rate changes, whether or not intervention is secret' (in the sense of no official reports or rumors of intervention reported over the newswires), and against other robustness checks. Large-scale (amounts over $1 billion) intervention, coordinated with the Bank of Japan and the Federal Reserve working in unison, give the highest success rate

A non-technical summary of this paper is available in the December 2003 NBER digest.  You can sign up to receive the NBER Digest by email.

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Document Object Identifier (DOI): 10.3386/w9648

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