1. How would each of these events affect the supply or demand for Japanese yen? (a) Stronger U.S....
1. How would each of these events affect the supply or demand for Japanese yen?
(a) Stronger U.S. economic growth.
(b) A decline in Japanese interest rates.
(c) Higher inflation in the United States.
please answer it by typing
Homework Answers
(a)
Stronger US economic growth will increase US import demand for Japanese goods, therefore Japan's export demand will rise. Demand for Yen will increase, appreciating Yen against dollar.
(b)
A decline in Japanese interest rate will decrease foreign investment in Japan, which will decrease the demand for Yen, depreciating Yen. Also, lower Japanese interest rate will cause Japanese investors to invest more in foreign assets, thus demand for foreign assets will rise, increasing the demand for foreign currency. Since Japanese investors will sell Yen to buy foreign currency, the supply of Yen will increase, depreciating Yen.
(c)
Higher inflation in US will make Japanese goods less expensive in US market, which will increase US import demand for Japanese goods, therefore Japan's export demand will rise. Demand for Yen will increase, appreciating Yen against dollar.
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