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Foreign exchange intervention and monetary policy in Japan, 2003–04

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Notes

  1. There was no intervention in the second quarter of 2004.

  2. The collateralized overnight interest rate (end of month) was lowered from 0.34 in December 1998 to 0.22 in January 1999 and 0.07 in February 1999. The rate was raised to the 0.20–25 range for a few months in late 2000 and early 2001, but again lowered to below 0.01 for most of 2001 and through September 2004.

  3. The monetary base (percent changes from a year earlier in average amounts outstanding) rose 25.7% in 2002, 16.4% in 2003, 13.8% in 2004Q1 and 6.1% in 2004Q2.

  4. Nominal GDP rose 0.3 percent in 2003 and at a similar annual rate in the first half of 2004. Real GDP growth, by contrast, indicated some recovery of the economy in 2003 and early 2004. (2003 real GDP growth was 3.2 percent).

  5. The Foreign Exchange and Foreign Trade Law stipulates that the “Minister of Finance shall endeavor to stabilize the external value of the yen through foreign exchange trading and other measures” (Article 7, Section 3).

  6. Foreign exchange interventions are usually conducted in the Tokyo market. However, as most of the trading shifts to European markets after around 5:00 p.m. JST and then to the New York market, the BOJ requests foreign monetary authorities to conduct interventions on behalf of the Bank. The final decision to use this method is made by the MOF. The MOF also determines the details of the intervention including the amount, currency pair, and method of intervention (Bank of Japan, “Frequently Asked Questions: Outline of the Bank of Japan’s Foreign Exchange Intervention Operations.” July 2000).

  7. There are five types of Financial Bills (FBs), each of which is associated with some Special Account or the General Account of the Government of Japan’s budget. The FBs associated with the Foreign Exchange Funds Special Account accounts for the largest share in the amount of outstanding FBs, usually more than 90%.

  8. See Ito (2003) for a detailed discussion.

  9. The issue of massive foreign exchange market intervention was not even a topic addressed in the “Japan: Selected Issues” of the IMF Country Report No. 03/282 on Japan published in September 2003.

  10. See, for example, Galati et al. (2003) and Truman (2003) for studies questioning the effectiveness of intervention.

  11. See Sarno and Taylor (2001) for a recent survey of the theoretical and empirical literature and Dominguez (2003) for a description and analysis of the foreign exchange market intervention in the 1990s.

  12. The U.S. Treasury Notes were sold by the Bank of Japan back to the FEFSA by the end of June (as per the terms of the original agreement).

  13. The amount of foreign currency assets was 4.2 trillion yen at end-September 2003.

Reference

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  1. Department of Marketing, Business Economics & Law, School of Business, University of Alberta, Edmonton, Alberta, Canada, T6G 2R6

    Rasmus Fatum & Michael M. Hutchison

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  1. Rasmus Fatum
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  2. Michael M. Hutchison
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Fatum, R., Hutchison, M.M. Foreign exchange intervention and monetary policy in Japan, 2003–04. IEEP 2, 241–260 (2005). https://doi.org/10.1007/s10368-005-0036-y

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