Does transparency in central bank intervention policy bring noise in the FX market?

This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on market perception and on rumors that can emerge. Using the case of the Bank of Japan which has continued to intervene actively and unilaterally in recent years, we estimate a dynamic-probit model that explains the main determinants of CBI rumors in the foreign exchange market. Two sets of determinants are clearly identified: the first is related to the intervention strategy adopted by the central bank (CB) for both actual and oral interventions; the second to the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors depends on the type of speeches made by officials: oral interventions aimed at giving some information on the CB's point of view concerning the exchange rate market generate speculation about the future decisions of the CB, increasing the probability of unrequited interventions, i.e. rumors about future interventions. Conversely, official speeches clarifying the current intervention policy reduce the uncertainty concerning the occurrence of a potential intervention, decreasing the probability of false rumors, i.e. falsely reported interventions.