Foreign exchange market intervention and price discovery

This paper studies the role of foreign exchange market intervention in the price discovery process of the USD-JPY market. Using the tick-by-tick bid and ask quotes from the Electronic Broking Services (EBS), we find that Japanese official intervention affects the relative contributions of bid and ask quotes to price discovery of the USD-JPY exchange rate. The empirical results show that bid quotes usually respond to information more promptly than ask quotes, as measured by information share on a daily basis. The asymmetry in price-discovery efficacy of bid and ask quotes, however, declines in magnitude on days in which Japanese monetary authorities intervene in the USD-JPY market.