Suppose Japan runs a trade deficit.Other things equal, if the Japanese yen appreciates against other currencies in the exchange markets, this will
A) have no effect on the Japanese balance of trade.
B) tend to improve the Japanese balance of trade because Japanese imports will become more expensive.
C) tend to worsen the Japanese balance of trade because Japanese exports will become cheaper.
D) None of these is correct.

Question

Quizplus · Accepted Answer

An appreciation in the Japanese yen means that the yen is stronger against other currencies, making Japanese exports cheaper and imports more expensive. This would tend to worsen the Japanese balance of trade as exports become less attractive to foreign buyers and imports become more attractive to domestic consumers.

Suppose Japan Runs a Trade Deficit