Effectiveness of official daily foreign exchange market intervention operations in Japan

This paper investigates the effectiveness of intervention in the JPY/USD exchange rate market using recently published official daily data on Bank of Japan intervention and an event study methodology. We identify separate intervention “episodes” and analyze the subsequent effect on the exchange rate. Using the non-parametric sign test and matched-sample test, we find strong evidence that sterilized intervention systemically affects the exchange rate in the short-run (less than one month). This result holds even when intervention is not associated with (simultaneous) interest rate changes, whether or not intervention is “secret” (in the sense of no official reports or rumors of intervention reported over the newswires), and against other robustness checks.