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What drives Yen interventions in Tokyo?: Do off-shore foreign exchange markets matter more than Tokyo market?

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  • Hall, Yosuke
  • Kim, Suk-Joong

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.

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  • Hall, Yosuke & Kim, Suk-Joong, 2009. "What drives Yen interventions in Tokyo?: Do off-shore foreign exchange markets matter more than Tokyo market?," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 175-188, April.
    • Handle: RePEc:eee:pacfin:v:17:y:2009:i:2:p:175-188
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    Cited by:

    1. Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2014. "The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate," Open Economies Review, Springer, vol. 25(2), pages 311-336, April.
    2. He Li & Zhixiang Yu & Chuanjie Zhang & Zhuang Zhang, 2017. "Determination of China’s foreign exchange intervention: evidence from the Yuan/Dollar market," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 34(1), pages 62-81, March.

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