Working Paper: NBER ID: w8914
Authors: Takatoshi Ito
Abstract: This paper examines Japanese foreign exchanges interventions from April 1991 to March 2001 based on newly disclosed official data. All the yen-selling (dollar-purchasing) interventions were carried out when the yen/dollar rate was below 125, while all the yen-purchasing (dollar-selling) interventions were carried out when the yen/dollar was above 125. The Japanese monetary authorities, by buying the dollar low and selling it high, have produced large profits, in terms of realized capital gains, unrealized capital gains, and carrying (interest rate differential) profits, from interventions during the ten years. Profits amounted to 9 trillion yen (2% of GDP) in 10 years. Interventions are found to be effective in the second half of the 1990s, when daily yen/dollar exchange rate changes were regressed on various factors including interventions. The US interventions in the 1990s were always accompanied by the Japanese interventions. The joint interventions were found to be 20-50 times more effective than the Japanese unilateral interventions. Japanese interventions were found to be prompted by rapid changes in the yen/dollar rate and the deviation from the long-run mean (say, 125 yen). The interventions in the second half were less predictable than the first half.
Keywords: No keywords provided
JEL Codes: F31; E58; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| yen-dollar rate < 125 (F31) | yen-selling dollar-purchasing interventions (F31) |
| yen-dollar rate > 125 (F31) | yen-purchasing dollar-selling interventions (F31) |
| interventions (O31) | daily yen-dollar exchange rate changes (F31) |
| joint interventions with US (F55) | effectiveness of interventions (I24) |
| rapid changes in exchange rate (F31) | Japanese interventions (F02) |
| deviations from long-run mean of around 125 yen per dollar (F31) | Japanese interventions (F02) |