What Drives Yen Interventions in Tokyo?: Do Off-Shore Foreign Exchange Markets Matter More than Tokyo Market?

Pacific Basin Finance Journal, Vol. 17, pp. 175-188, 2009

27 Pages Posted: 15 Apr 2007 Last revised: 9 Feb 2010

Yosuke Sandy Hall

University of New South Wales (UNSW)

Suk-Joong Kim

The University of Sydney Business School; The University of Sydney Business School

Date Written: February 8, 2010

Abstract

We investigate the Bank of Japan's (BOJ) Yen interventions for the period 13 May 1991 to 16 March 2004. The previous literature has been hampered by the coarse daily data and has been unable to identify intervention determinants beyond some embodiment of the first moment of Yen returns. We consider both lagged overnight off-shore (London and New York) and intradaily on-shore (Tokyo) market developments for their heterogeneous influences on the BOJ's intervention decisions. Using a friction model to estimate the reaction function, we find that the interventions were leaning against the wind during the Tokyo hours, in general. Prior to June 1995, there were significant responses to previous day's intradaily Yen returns and volatility. Post 1995, we report a broadening in the BOJ's monitoring to include overnight off-shore Yen returns until Dec 2002 and a broader measure of market disorderliness measured as a transactions cost band in one-month covered interest rate parity condition since Jan 2003. Moreover, there is some evidence that the BOJ secretly leaned into the wind in response to Yen depreciations during the recent period of 2003-2004.

Keywords: Yen intervention, Bank of Japan, Intervention reaction function

JEL Classification: E44, G14, G15

Suggested Citation

Hall, Yosuke Sandy and Kim, Suk-Joong, What Drives Yen Interventions in Tokyo?: Do Off-Shore Foreign Exchange Markets Matter More than Tokyo Market? (February 8, 2010). Pacific Basin Finance Journal, Vol. 17, pp. 175-188, 2009 . Available at SSRN: https://ssrn.com/abstract=980384

Yosuke Sandy Hall (Contact Author)

University of New South Wales (UNSW) ( email )

Sydney, NSW 2052
Australia

Suk-Joong Kim

The University of Sydney Business School ( email )

Sydney
Australia
+61 2 9114 0940 (Phone)

The University of Sydney Business School ( email )

Sydney
Australia
+61 2 9114 0940 (Phone)

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