Effects of Japanese intervention on yen/dollar exchange rate volatility: a conditional jump dynamics approach

This article investigates the effects of foreign exchange interventions by the Japanese authorities on the level as well as the volatility of yen/dollar exchange rate. The empirical results show interventions in the last decade were effective not only in altering the exchange rate level, but also in volatility reduction. Jump events that tended to drive yen's appreciations and volatility increases have been effectively reduced by the 'large-in-size' interventions during the last decade. Our findings are in compliance with the coordination channel that explains the effectiveness in intervention proposed by Taylor (2004) and Reitz and Taylor (2006).