Introduction

Since the introduction of a floating exchange rate system in February 1973, the Japanese economy has experienced large fluctuations in foreign exchange rates, with the yen on a long rising trend. In order to mitigate the negative influence of such fluctuations on the Japanese economy, foreign exchange market interventions (hereafter "foreign exchange interventions" or simply "interventions") have been conducted from time to time. Although, these interventions have occasionally been reported in newspapers and other news media, the actual operational procedures seem not to be well understood. This article will therefore briefly explain the basics of foreign exchange intervention, focusing on the practical side.

The next section begins with the definition of foreign exchange intervention and goes on to outline its legal status. Section III explains the operation of intervention, including the decision-making procedures. The last section deals with the funding and foreign exchange reserve management that accompany foreign exchange intervention.