Have Official Foreign Exchange Interventions Been Successful?

The Bank of Japan has intervened today, September 15, 2010, to bring down the value of the yen.  The official quote for the yen on September 14 is 83.05; the yen traded close to this range last in 1995 and the lowest mark is 81.12 yen per dollar on April 19, 1995.  A weak yen is necessary to boost exports and promote growth, particularly in the current shaky economic situation in Japan.  What is historical record of central bank interventions being successful?  It is widely accepted that foreign exchange interventions are not successful in the long run.  The yen has risen 9.5% and 23%, respectively, vis-à-vis the dollar and the euro in the past twelve months.  Today's intervention has resulted in a temporary reduction in the value of the yen.  As of this writing, the yen was trading at 111.34 per euro and 85.56 per dollar.

We are not experts of the foreign exchange market.  We would like to share with you a study about the Bank of Japan's previous interventions (Coordinated Currency Interventions Temporarily Move Exchange Rates) which has a noteworthy conclusion.  The authors of this study indicate that the Bank of Japan was successful in bringing about a temporary reduction of the value of the yen when it was a coordinated effort of more than a $1 billion, while single-handed interventions have been successful only 60% of the time.  Today's actions of the Bank of Japan is most likely not a one-off event, stay tuned for updates.
Motor Vehicle Output Trims Headline, Other Details Present a Moderate Performance

Industrial production increased 0.2% in August, after a downwardly revised 0.6% jump in July (previously reported as a 1.0%) increase.  The headlines of both July and August were partly dominated by swings in auto production (+9.5% in July and -5.0 in August).  These wide movements resulted from atypical production gains in July as auto plants were not shutdown for retooling in the summer.

Factory production also moved up 0.2% in August vs. a 0.7% gain in July, reflecting a downward revision.  Excluding autos, factory production rose 0.5% in August after a 0.2% increase in the prior month. On a year-to-year basis, both total factory production and factory production excluding autos show gains, with a small moderation in place (see chart 2)

Outside of autos, production of furniture and related products fell 1.8% in August but posted a 2.2% increase from a year ago. Several components -- wood products, primary metals, fabricated metal products, and electrical equipment, appliances, and components -- showed noticeable gains of at least 1.0% during August and more than offset the drop in auto and furniture output.  The operating rate of nation's industries was 74.7% in August, up one notch from July.  The factory capacity utilization rate was 72.2% in August, which is roughly 7 percentage points below the long-term average.