The design of effective Central Bank interventions: the yen/dollar case

This paper explores the effects of the interventions of the Bank of Japan on the level and volatility of the yen/dollar exchange rate. A special attention is devoted to the prominent features affecting the signal conveyed by these interventions. The results show a clear duality: small unilateral interventions are counterproductive while large and isolated ones influence the foreign exchange market in the desired directions. It is also found that perverse effects are avoided through coordinated operations.