Japanese central bank interventions and the dispersion of individual exchange rate expectations: differential impact on four moment characteristics

Abstract

We investigate the influence of Japanese central bank interventions on market participants' opinions about the future path of exchange rates. Based on a survey of individual forecasts made by 31 analysts, we investigate the sensitivity of the change, dispersion, directionality and flatness of expectation distributions between January 1995 and December 2004. In line with previous findings, we provide evidence that exchange rate market volatility is positively linked to the degree of dispersion among market participants' expectations. Only large and transparent central bank interventions have a significant influence on market participants' opinions about the future path of exchange rates. Uncertainty is exclusively reduced among 12-month forecasts. It should be stressed furthermore that for these forecasts positive interest rate spreads and interventions are shown to have an asymmetric impact on heterogeneity: they tend to increase the degree of consensus among forecasters who attach more weight to a stronger yen and to increase the degree of disagreement among the others.