Dynamic Persistence in Yen Market Operations: Pre-Intervention Rate Conditions and Exchange-Rate Reversal

Abstract

Japanese foreign-exchange intervention is often evaluated by the exchange-rate movement on the intervention day. This paper argues that the relevant policy outcome is the persistence of the intendeddirection response after the initial operation. Using the official intervention chronology, daily USD/JPY observations, Japanese and U.S. short-rate measures, and strictly lagged market controls, the analysis constructs 69 pre-2026 intervention episodes and separates first-day response, continuation, decay, and reversal. Episodes preceded by an aligned short-end yield-curve state show mean intended-direction responses of 0.78 percentage points on the intervention day and 2.06 percentage points at the 20-day horizon, compared with 0.26 and -0.05 percentage points for misaligned episodes. Conditional regressions associate a one-standard-deviation increase in alignment with responses of 0.41, 0.60, and 0.83 percentage points at 5, 10, and 20 days. Raw wild-bootstrap p-values are near conventional thresholds, but Holm adjustment across the frozen horizon family yields 0.109. Alignment is also associated with a 25.2% larger first-day operation and lower continuation odds, although the two-outcome family does not reject. The estimates therefore support a positive state-dependent persistence gradient, not a confirmed causal effect of intervention. The findings show why an immediate currency movement should not be treated as evidence of durable policy effectiveness.

Author abstract from the research manuscript. Typography and line breaks have been normalized; the linked source may show a different manuscript version.