A note on the yen/dollar rate without foreign exchange intervention

Abstract

This article shows what the yen/dollar rate would be without foreign exchange interventions by the Japanese government for 61 086 billion yen. If there had been no interventions, then the yen/dollar rate in June 2011 may have been 54.30 instead of the actual rate of 80.52.

Keywords:

• exchange rate
• foreign exchange intervention
• international reserves
• Japan

JEL Classification:

• F31
• F37

Acknowledgements

We thank Seiichi Fujita (Kobe University), Hidehumi Yamagami (Kinki University), Kentaro Iwatsubo (Kobe University) and Kazuyuki Inagaki (Onomichi University) for providing us with very useful comments about the earlier version of this article. We thank the participants of International Monetary Economics Study Group seminar and the Japan Society of Monetary Economics. This work was supported by KAKENHI (23730316).

All remaining errors are the sole responsibility of the authors.

Notes

¹ The initial value is 72 791 million dollars, which was the international reserve at the end of March 1991.

² The front page of the evening edition of the Nihon Keizai Shimbun (Nikkei Inc.), 15 September 2010.

³ 2124.9 billion yen was approximately 24.786 billion dollars based on the exchange rate at 17:00 on 15 September 2010.

⁴ Page 5 of the morning edition of the Nihon Keizai Shimbun (Nikkei Inc.), 17 September 2010.

⁵ In summary, this instance of intervention is interesting for researchers in the following six respects: (i) the intervention was publicly announced; (ii) the time of intervention was known; (iii) it was the largest yen-selling, dollar-buying intervention in history; (iv) the Bank of Japan (BOJ) announced that it would not sterilize the funds; (v) the timing was surprising even for market participants; and (vi) it had a considerable effect on the stock market.

⁶ Refer to Sarno and Taylor (2001) for a recent survey of the literature.

⁷ Hoshikawa (2012) reported that there is cointegration among international reserves and exchange rate.

⁸ Source: Reuters EcoWin Pro. Japan, Spot Rate, USD/JPY, Close (code ew:jpn19001).

⁹ Source: http://www.mof.go.jp/english/international_policy/reference/feio/index.htm

¹⁰ See Hoshikawa (2008a).