Against the wind or with it? The intraday and daily dynamics of yen interventions

Abstract

Modeling the reaction function of Japanese policymakers as an optimization of a cost–benefit framework based on JPY/USD exchange rate movements, volatility, and trade volume, this study investigates Japan’s foreign exchange intervention timing and motives from 2008 to 2024 using both daily and high-frequency 15 min data. The empirical results show that at the daily frequency, policymakers primarily target a long-run exchange rate level, with daily volatility playing no significant role. In contrast, the intraday analysis reveals that policymakers are more likely to intervene in response to heightened volatility and trade volume, and tend to reinforce short-term market trends by leaning in the wind. These findings underscore the complexity of intervention strategies, highlighting distinct decision-making approaches across different time horizons.