How will contractionary monetary policy in Japan affect the demand for the yen and the supply of the yen in the foreign exchange market?
A)The demand for the yen will fall,and the supply of the yen will increase.
B)The demand for the yen will increase,and the supply of the yen will fall.
C)The demand for the yen will fall,and the supply of the yen will fall.
D)The demand for the yen will increase,and the supply of the yen will increase.

Question

Quizplus · Accepted Answer

Contractionary monetary policy in Japan typically involves increasing interest rates or reducing the money supply, which makes holding yen-denominated assets more attractive due to higher returns. This increases the demand for yen as foreign investors buy yen to invest in Japan. Simultaneously, Japanese investors are less incentivized to seek investments abroad, reducing the supply of yen in the foreign exchange market as they are less likely to exchange yen for foreign currencies.

How Will Contractionary Monetary Policy in Japan Affect the Demand