Intraday effects of foreign exchange intervention by the Bank of Japan

We examine the effects of intervention by the Bank of Japan using intraday data from Oct. 1, 1992 to Sept. 30, 1993. News related to the Bank of Japan's intervention in the JPY/$ market was retrieved from Reuters' headlines. We find that JPY/$ volatility varies significantly differently across periods from 1 h before to 1 h after Reuters' intervention reports. Results from ARCH models show that intervention by the Bank of Japan has a positive and significant impact on JPY/$ volatility, particularly at high frequencies (5- and 10-min intervals). We also find that our intervention proxy has the largest effect upon high frequency volatility 30 to 45 min prior to Reuters' reports. (C) 1998 Elsevier Science Ltd. All rights reserved.