Intraday Evidence of Efficacy of 1991-2004 Yen Intervention By the Bank of Japan

27 Pages Posted: 31 Aug 2005

See all articles by Suk-Joong Kim

Suk-Joong Kim

The University of Sydney Business School

Abstract

This paper investigates the intraday efficacy of Yen intervention conducted by the Bank of Japan. Segmenting a 24 hour calendar day into three business hours - onshore and two offshore hours - I examine both contemporaneous and ex post intervention effects on the Yen/USD exchange rate. Prior to June 1995, intervention moved the exchange rate in the wrong direction and the level of volatility is significantly raised during Tokyo business hours. This is due to the well-known simultaneity bias. However, during the first overnight hours (London business hours) the simultaneity bias is significantly reduced and by the second overnight hours (New York afternoon hours) intervention successfully reversed the exchange rate trends and reduced the volatility. Post June 1995, intervention had an immediate effect of reversing the exchange rate trend and it remained effective, although at reduced magnitude, throughout overnight horizons. A volatility reducing effect is significant from the first overnight horizon and its effectiveness rises in the second overnight horizon.

Keywords: Bank of Japan, Yen intervention, Intraday exchange rate volatility

JEL Classification: E44, G14, G15

Suggested Citation

Kim, Suk-Joong, Intraday Evidence of Efficacy of 1991-2004 Yen Intervention By the Bank of Japan. Journal of International Financial Markets, Institutions and Money, Vol. 17, pp. 341-360, 2007, Available at SSRN: https://ssrn.com/abstract=791304

Suk-Joong Kim (Contact Author)

The University of Sydney Business School ( email )

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