Intraday evidence of efficacy of 1991-2004 Yen intervention by the Bank of Japan

This paper investigates the intraday efficacy of Yen intervention conducted by the Bank of Japan. Segmenting a 24 h calendar day into three business hours - onshore and two offshore hours - I examine both contemporaneous and ex post intervention effects on the Yen/USD exchange rate. Prior to June 1995, intervention moved the exchange rate in the wrong direction and the level of volatility is significantly raised during Tokyo business hours. This is due to the well-known simultaneity bias. However, during the first overnight hours (London business hours) the simultaneity bias is significantly reduced and by the second overnight hours (New York afternoon hours) intervention successfully reversed the exchange rate trends and reduced the volatility. Post-June 1995, intervention had an immediate effect of reversing the exchange rate trend and it remained effective, although at reduced magnitude, throughout overnight horizons. A volatility reducing effect is significant from the first overnight horizon and its effectiveness rises in the second overnight horizon.