As the yen depreciated rapidly, the Japanese and US monetary authorities conducted coordinated intervention. This article explains how coordinated intervention works and its expected effectiveness.
As the yen depreciated rapidly, the Japanese and US monetary authorities conducted coordinated intervention in the foreign exchange market, an event that has been reported as historic. The intervention was highly unusual, and the term “coordinated intervention” was repeatedly used.
Coordinated intervention refers to the monetary authorities of multiple countries intervening in the market simultaneously with the same objective. It is explained as having the effect of sending a strong message to the market and is generally considered more influential than ordinary unilateral intervention.
On the Japanese side, intervention is decided by the Ministry of Finance, while the Bank of Japan conducts transactions as its agent. To curb yen depreciation, the authorities would be expected to sell dollar assets and buy yen, while to curb yen appreciation, they would sell yen and buy dollars.
The scale of trading in global foreign exchange markets is enormous, and whether coordinated intervention produces a lasting effect is said to depend on market supply and demand. It may take time for the intervention to prove effective.
Related information on the background and history of coordinated intervention, including examples since the Plaza Accord, is presented to help readers understand future developments.