Japanese Foreign Exchange Interventions, 1971-2018: Estimating a Reaction Function Using the Best Proxy

Takatoshi Ito, Tomoyoshi Yabu

Research output: Contribution to journalArticlepeer-review

Abstract

We analyze the history of Japanese foreign exchange interventions from 1971 to 2018. First, we provide the best proxy for monthly interventions for the period from 1971 to 1990, when the intervention timings and amounts were not officially disclosed. The accuracy of the proxy is tested for the period when the statistics were disclosed after 1991. The proxy explains 99.8% of actual settlement-based interventions. Second, we examine conditions under which the Japanese monetary authorities are likely to intervene by estimating a policy reaction function, using the long-term data, spanning the period when intervention data have been officially disclosed and the period where our proxy is available. Third, we analyze intervention timings and amounts for Japan, the US, and Germany. Fourth, we present the episode of international coordination represented by the Plaza and Louvre agreements as a case study of notable interventions during the period.

Original languageEnglish
Article number101106
JournalJournal of The Japanese and International Economies
Volume58
DOIs
Publication statusPublished - 2020 Dec

Keywords

  • Central bank intervention
  • Foreign reserves
  • Ordered probit model
  • Policy coordination
  • Structural break

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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