Why did the yen appreciate against the U.S. dollar last week?
The yen appreciated against the U.S. dollar last week because traders expected the Bank of Japan to ____________ interest rates, which was expected to ___________ the yen exchange rate.
Wrong! - If the Bank of Japan is expected to change interest rates, how does the expected yen exchange rate change? What actions do traders take in the foreign exchange market?
Well Done! - Traders expected the Bank of Japan to raise interest rates, which was expected to raise the yen exchange rate. When the yen exchange rate is expected to rise, the demand for yen increases, the supply of yen decreases, and the yen appreciates.
