HOME » Publications » Economic Review

Abstract

Vol. 54, No. 2, pp. 97-113 (2003)

“Analysis of Foreign Exchange Intervention in Japan”
Takatoshi Ito (Research Center for Advanced Science and Technology, The University of Tokyo / The Institute of Economic Research, Hitotsubashi University)

This paper analyzes the institutional mechanism, history, patterns, profitability, and effectiveness of Japanese intervention in the yen/dollar market from April 1991 to March 2002, based on newly disclosed intervention data. During this period, the yen-selling/dollar-purchasing points were always below 125 yen/dollar mark, while the yen-purchasing/dollar-selling points were always above 125 yen/dollar mark. The authorities bought the dollar low and sold high. Estimates of profits from interventions, realized and unrealized gains and profits from interest rate differentials, amounted to 10 trillion yen over the 11 years. Effectiveness is determined by examining the yen/dollar rate movement over a 24 hour period that includes intervention operations, compared to the preceding 24 hour period. Interventions were effective in the second half of the sample (after June 1995). Joint interventions were particularly powerful in moving the rate in the intended direction.