How Transparent is the Intervention Exchange Rate Policy of the Bank of Japan?

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Abstract
In this paper a new approach relying on news wire reports is used to capture all the transparency elements in the exchange rate intervention policy of the Bank of Japan during the period 1991-2004. As suggested by Enoch (1998), we distinguish three types of transparency: ex ante transparency, represented by oral interventions suggesting a potential future intervention; real time transparency proxied by news reports of interventions; and ex post transparency where the central bank confirms or explains its interventions after the event. We also consider the effect of a more or less transparent intervention policy on the market's perceptions and the rumours that it can bring out. We find that the transparency of the Bank of Japan's intervention policy varied greatly over time, with three distinct periods. We also find that less transparency in the exchange rate intervention policy induces more false or uncertain reports of interventions, but too much transparency can generate anticipative rumours.

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