Question

which of the following would cause the u.s. dollar to depreciate against the japanese yen? a. a higher price level in japan b. higher incomes in the united states c. higher real interest rates in the united states d. greater popularity of u.s. exports in japan

Answer 1

As Americans' wages rise, they purchase more Japanese imports, causing the supply curve for dollars to shift to the right and the exchange rate to fall.

In the last 30 years, the Japanese yen and its exchange rate with other currencies have experienced wild swings. In the early 1980s, the yen typically traded in a range of 200 to 270 per dollar. However, in September 1985, the world's major Western economies met in New York and agreed to devalue the dollar, a decision known as the Plaza Accord.

The Plaza Accord triggered a decade-long strengthening trend in the yen, with exchange rates approaching 80 yen to the dollar. The Japanese yen has fluctuated over the last 35 years, particularly in the first decade following the 1985 Plaza Accord, in which a deal was struck to devalue the yen.

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