A foreign exchange intervention in an era of restraint

The Japanese yen appreciated strongly and rapidly against other major currencies in the wake of the massive March 11, 2011, Tohoku earthquake. High volatility and disorder in financial markets prompted the G-7 authorities to jointly intervene to weaken the yen. This episode resembled the two most recent G-7 coordinated interventions: the June 1998 effort to strengthen the yen and the September 2000 effort to strengthen the euro. Exchange rates reacted strongly and quickly to these three interventions, moving 3 to 4 percent in the desired direction within 30 minutes of the announcement and exhibiting lower volatility in the following days. G-7 authorities have used intervention very sparingly since 1995, yet the March 2011 policy action is a reminder that it can be used to calm markets and move the exchange rate in the desired direction. Intervention has become much less common but more successful.