Central Bank Interventions in the Yen-Dollar Spot Market

Suk-Joong Kim () and Jeffrey Sheen

No 4, Working Papers from University of Sydney, School of Economics

Abstract: We test the effectiveness of Bank of Japan (BOJ)'s foreign exchange interventions on conditional first and second moments of exchange rate returns and traded volumes, using a bivariate EGARCH model of the Yen/USD market from 5-13-1991 to 6-28-2002. We also estimate a friction model of BOJ's intervention reaction function based on reducing short-term market disorderliness and supplementing domestic monetary policy. We find ineffectiveness of BOJ interventions pre-1995 but effectiveness post-1995, Fed intervention amplified the effectiveness of the BOJ transactions, BOJ's interventions were based on ‘leaning against the wind' motivations, and BOJ interventions were vigorously used in support of domestic monetary policy objectives pos t-1995.

Keywords: Foreign exchange intervention; Bank of Japan; exchange rate volatility; trade volume (search for similar items in EconPapers)
Date: 2004-07
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