Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan

33 Pages Posted: 4 May 2003 Last revised: 13 Nov 2022

See all articles by Rasmus Fatum

Rasmus Fatum

University of Alberta - Department of Marketing, Business Economics & Law

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2003

Abstract

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

Suggested Citation

Fatum, Rasmus and Hutchison, Michael M., Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan (April 2003). NBER Working Paper No. w9648, Available at SSRN: https://ssrn.com/abstract=403460

Rasmus Fatum (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-3951 (Phone)
780-492-3325 (Fax)

HOME PAGE: http://www.bus.ualberta.ca/rfatum

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-2600 (Phone)
831-459-5900 (Fax)

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