On-Going versus Completed Interventions and Yen/Dollar Expectations - Evidence from Disaggregated Survey Data

This paper analyzes the effectiveness of Bank of Japan (BOJ) interventions between November 1995 and December 2004 on foreign exchange expectations. Unlike previous studies, we focus on exchange rate expectations of individual market participants in the yen/dollar market. To this end, we use disaggregated forecast survey data from Consensus Economics. We find that, in principle, BOJ interventions do not affect exchange rate expectations when we disregard ‘evaluation’ period effect and successful intervention effect. However, applying the methodology proposed by Fatum and Hutchison (2006) to identify successful interventions on current spot market, we provide evidence that only successful interventions affect exchange rate expectations. Compared to the existing literature, which argues that interventions have, if at all, only short-term effects on the exchange rate, we show that successful interventions affect the exchange rate forecasts for up-to three months.