Other things remaining unchanged, if American exports to Japan increase and American imports from Japan decrease, then under a floating exchange rate system, we would expect::

Question

Quizplus · Accepted Answer

An increase in American exports to Japan and a decrease in American imports from Japan will result in a higher demand for Japanese yen by Americans who need to pay for their imports from Japan. This will create a higher demand for Japanese yen in the foreign exchange market, which will cause the value of the U.S. dollar to depreciate relative to the Japanese yen. In order to maintain the equilibrium, the exchange rate will adjust and the U.S. dollar will appreciate relative to the yen.

Other Things Remaining Unchanged, If American Exports to Japan Increase