Effects of Oral Intervention on Fluctuations in Exchange Rates: Evidence from Japan 1995-2011
DOI:
https://doi.org/10.6000/1929-7092.2013.02.6Keywords:
Exchange rate, intervention, event study, yen-dollar exchange rate, communicationAbstract
Abstract: This paper studies the effects of oral interventions on the JPY/USD rate between 1995 and 2011. Traditionally, monetary authorities have intervened directly in foreign exchange markets. In recent years, however, actual interventions have been supplemented or supplanted by “oral interventions†to influence market expectations. In the Japanese case, monetary authorities did not directly intervene in the market from 2005 to August 2010. They conducted actual interventions only five times between 2010 and 2012, though Japan has been noted for ongoing oral intervention in recent years. Prior studies examining the impact of oral interventions provide mixed results regarding their effectiveness. Our study attempts to contribute to the literature by focusing not only on the speaker of oral interventions, but also on the content of the statements released. Using the event study methodology, we find that market participants give great credence to announcements by monetary authorities that strike a decidedly positive or negative tone about current exchange rates. In addition, market participants give great credence to statements by speakers who actually conduct exchange rate policy, including staff from the Ministry of Finance and people affiliated with the Bank of Japan.
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http://dx.doi.org/10.1016/j.jmacro.2008.07.002
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Morel, Christphe, and Jerome Teiletche. 2008. Do interventions in foreign exchange marjets modify investors’ expectations? The experience of Japan between 1992 and 2004. Journal of Empirical Finance 15: 211-231.
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Watanabe, Toshiaki, and Kimie Harada. 2006. Effects of the Bank of Japan’s intervention on yen/dollar exchange rate volatility. Journal of the Japanese and International Economies 20: 99-111.
http://dx.doi.org/10.1016/j.jjie.2004.08.001
http://dx.doi.org/10.1016/j.jimonfin.2008.08.003
Beine, Michel, Oscar Bernal, Jean-Yves Gnabo, and Christelle Lecourt. 2009b. Intervention policy of the BOJ: A unified approach. Journal of Banking and Finance 33: 904-913.
http://dx.doi.org/10.1016/j.jbankfin.2008.10.005
Bernanke, Ben, S. 2004. Fedspeak. Address to the American Economic Association Meetings, San Diego, 3 January 2004.
Blinder, Alan S. 1998. Central Banking in Theory and Practice. MIT Press, Cambridge MA.
Evans, Martin D. D., and Richard K. Lyons. 2005. Do currency markets absorb news quickly? Journal of International Money and Finance 24(2): 197-219.
http://dx.doi.org/10.1016/j.jimonfin.2004.12.004
Evans, Martin D. D., and Richard K. Lyons. 2002. Order flow and exchange rate dynamics. Journal of Political Economy 110(1): 170-180.
http://dx.doi.org/10.1086/324391
Fatum, Rasmus, and Michael Hutchison. 2006. Effectiveness of official daily foreign exchange intervention operations in Japan. Journal of International Money and Finance, 25: 1051-1071.
http://dx.doi.org/10.1016/j.jimonfin.2005.11.007
Fatum, Rasmus, and Michael Hutchison. 2003. Is sterilized foreign exchange intervention effective after all? An event study approach. Economic Journal 113: 390-411.
http://dx.doi.org/10.1111/1468-0297.00122
Fatum, Rasmus, and Michael Hutchison. 1999. Is intervention a signal of future monetry policy? Evidence from the federal funds futures market. Journal of Money, Credit, and Banking 31(1): 54-69.
http://dx.doi.org/10.2307/2601139
Fratzscher, Marcel. 2008a. Oral interventions versus actual interventions in FX markets?an event-study approach?. Economic Journal 118: 1079-1106.
http://dx.doi.org/10.1111/j.1468-0297.2008.02161.x
Fratzscher, Marcel. 2008b. Communication and exchange rate policy. Journal of Macroeconomics 30(4): 1651-1672.
http://dx.doi.org/10.1016/j.jmacro.2008.07.002
Fratzscher, Marcel. 2006. On the long-term effectiveness of exchange rate communication and interventions. Journal of International Money and Finance 25: 146-167.
http://dx.doi.org/10.1016/j.jimonfin.2005.10.007
Gnabo, Jean-Yves, and Jerome Teiletche. 2009. Foreign-exchange intervention strategies and market expectations: insights from Japan. Journal of International Financial Markets, Institutions & Money 19: 432-446.
http://dx.doi.org/10.1016/j.intfin.2008.05.002
Humpage, Owen E. 1999. US intervention: accessing the probability of success. Journal of Money, Credit, and Banking. 31: 732-47.
http://dx.doi.org/10.2307/2601220
Ito, Takatoshi. 2002. Is foreign exchange intervention effective?: The Japanese experiences in the 1990s. NBER Working Paper 8914.
Jansen, David-Jan, and Jacob de Haan. 2007. Were verbal efforts to support the euro effective? A high-frequency analysis of ECB statements. European Journal of Political Economy 23, 245–259.
http://dx.doi.org/10.1016/j.ejpoleco.2006.09.017
Jansen, David-Jan, and Jacob de Haan. 2005. Talking heads: The effects of ECB statements on the euro-dollar exchange rate. Journal of International Money and Finance 24(2): 343-361.
http://dx.doi.org/10.1016/j.jimonfin.2004.12.009
Kaminsky, Graciela L., and Karen K. Lewis. 1996. Does foreign exchange intervention signal monetary policy? Journal of Macroeconomics 37(2): 285-312.
Morel, Christphe, and Jerome Teiletche. 2008. Do interventions in foreign exchange marjets modify investors’ expectations? The experience of Japan between 1992 and 2004. Journal of Empirical Finance 15: 211-231.
http://dx.doi.org/10.1016/j.jempfin.2006.07.005
Sarno, Lucio, and Mark P. Taylor. 2001. Official intervention in the foreign exchange market: is it effective and, if so, how does it work? Journal of Economic Literature 39: 839-868.
http://dx.doi.org/10.1257/jel.39.3.839
Taylor, John. 2006. Lessons from the Recovery from the ‘Lost Decade’ in Japan: The Case of the Great Intervention and Money Injection, Paper presented at the ESRI International Conference, Cabinet office, Government of Japan, September 14, 2006.
Watanabe, Toshiaki, and Kimie Harada. 2006. Effects of the Bank of Japan’s intervention on yen/dollar exchange rate volatility. Journal of the Japanese and International Economies 20: 99-111.
http://dx.doi.org/10.1016/j.jjie.2004.08.001
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Published
2013-04-10
How to Cite
Sakata, S., & Takeda, F. (2013). Effects of Oral Intervention on Fluctuations in Exchange Rates: Evidence from Japan 1995-2011. Journal of Reviews on Global Economics, 2, 60–78. https://doi.org/10.6000/1929-7092.2013.02.6
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