Neely (2001) states that "[t]he crucial distinction between sterilized and
unsterilized intervention is that the former constitutes a potentially useful independent policy tool while the latter is simply another way of conducting monetary policy.
The former type is called
unsterilized intervention while the latter is referred to as sterilized intervention.
The last official international investigation led by Philipe Jurgensen for the G7 in 1982 concluded that only
unsterilized intervention was of much use.
The distinction between sterilized and
unsterilized intervention, though much worried over by aficionados, becomes just a matter of semantics when money creation is great.
This provides evidence for successful intervention in Japan's liquidity trap where the distinction between sterilized and
unsterilized intervention becomes blurred.
With
unsterilized intervention, for example, the money supply would grow more rapidly, ostensibly stimulate economic activity and act as either a substitute or a complement for fiscal policy.
For now, partially
unsterilized intervention is perceived as a means of expanding the monetary base of Japan, a basic element of monetary policy.
For some issues, such as motivation or time horizon of effectiveness, this conflation of responses about sterilized and
unsterilized intervention is potentially unfortunate.
There is no point in talking about sterilized and
unsterilized intervention.
Unsterilized intervention is equivalent to domestic monetary policy and therefore is often implicitly excluded from discussions of the efficacy of intervention.
Because an
unsterilized intervention involves leaving the funds in the market unabsorbed after a dollar-buying operation, it normally creates greater liquidity in the money market, and thus in theory helps keep the yen weak.
According to the minutes, one Policy Board member said
unsterilized intervention would be ineffective in moving exchange rates as there is little room left for a further drop in interest rates.
