Relatively high Japanese inflation may result in an increase in the supply of yen for sale and a reduction in the demand for yen, other things being equal.

Question

Quizplus · Accepted Answer

When inflation in Japan is relatively high, it makes Japanese goods more expensive compared to foreign goods. As a result, imports may increase and exports may decrease, leading to more yen being sold to purchase foreign currencies for imports, and less foreign currency being converted into yen for exports. This increases the supply of yen in the foreign exchange market and reduces its demand, potentially affecting its value.

Relatively High Japanese Inflation May Result in an Increase in the Supply