Does the simple microstructure model tell the time of the FX intervention? A one day analysis of the Japanese FX intervention

•I utilize a regime-switching model to detect the time of the FX intervention.•The estimated time is consistent with the official starting time.•The intervention brings the damping effect that private order flows convey no information.•The first intervention of a sequence has a larger impact than subsequent ones.

Using tick data of the USD/JPY rate, I propose the method to detect the time of the FX intervention. I use the simple microstructure model and assume that the FX intervention causes regime-switching in the microstructure of the USD/JPY market, changes in adverse selection, and inventory effect. The time of the intervention is estimated endogenously by the Markov-switching model, and the actual starting time is well estimated. I also find that no market orders, except a large U.S. dollar purchase, convey any private information during the period of the intervention.

Graphical abstractFrequency of state 1 (regime of FX intervention) in the Asian segment.Figure optionsDownload full-size imageDownload as PowerPoint slide