Interventions in the Yen-dollar spot market: A story of price, volatility and volume

Suk Joong Kim*, Jeffrey Sheen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

24 Citations (Scopus)


We test the effectiveness of Bank of Japan (BOJ)'s foreign exchange interventions on conditional first and second moments of exchange rate returns and traded volumes, using a bivariate EGARCH model of the Yen/USD market from 5-13-1991 to 3-16-2004. We also estimate a friction model of BOJ's intervention reaction function based on reducing short-term market disorderliness and supplementing domestic monetary policy. Important finding of this study are that: (i) we find ineffectiveness of BOJ interventions in influencing exchange rate trends pre-1995, in general, but effectiveness post-1995; (ii) FED intervention amplified the effectiveness of the BOJ transactions; (iii) interventions amplified market volatility and volumes through a 'learning by trading' process; (iv) BOJ's interventions were based on 'leaning against the wind' motivations on the exchange rate trend and volumes; and (v) BOJ interventions were vigorously used in support of domestic monetary policy objectives post-1995. Though some of our findings confirm recent studies, our analysis goes deeper to provide new findings with important implications for central banks and foreign exchange market participants.

Original languageEnglish
Pages (from-to)3191-3214
Number of pages24
JournalJournal of Banking and Finance
Issue number11
Publication statusPublished - Nov 2006
Externally publishedYes


  • Bank of Japan
  • Exchange rate volatility
  • Foreign exchange intervention
  • Trade volume


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