Question: Explain what would happen to U.S. Interest rate and JPY/USD w/o purchase of U.S debt by Asian Bank?
The Bank of Japan considers the USD to be undervalued. The bank would intervene in the FX market and buy U.S debt. If they do this, there will be more USD in the market and the interest rate would be lower, correct?? If this is the case, what what would happen if the Bank Of Japan did NOT intervene, what would happen to the JPY/USD exchange rate as well as the interest rate in the U.S? Please help!
- ideogeneticLv 71 decade agoFavorite Answer
Interest rates would be higher and USD/JPY (the way it's usually reported) would start rising (the value of the dollar in Yen) as people start taking the carry trade. If interest rates are higher in the U.S. than Japan, people borrow in Yen and buy Dollars to make money on the spread. There probably is an unknown tipping point, though, where money markets would lose faith in our economy, and the dollar, with rising interest rates in the face of the predicament we're in now.
- lamadlineLv 44 years ago
"utilising historic examples for his paper, New data on the activity fee consequences of budget Deficits and Debt, Mr Laubach got here to the tip that “a proportion element strengthen interior the projected deficit-to-GDP ratio will strengthen the ten-year bond fee expected to prevail 5 years into the destiny by utilising 20 to 40 foundation factors, a common estimate is approximately 25 foundation factors”. the U. S. deficit has blown out from 3pc to 13.5pc interior the previous year yet long-term expenses are regularly unchanged. Assuming Mr Laubach’s “popular estimate”, long-term expenses could climb 2.5 proportion factors. He extra: “further, a proportion element strengthen interior the projected debt-to-GDP ratio will strengthen destiny expenses of activity by utilising approximately 4 to 5 foundation factors.” Economists are predicting a huge variety of ratios yet Mr Congdon pronounced it became into “no longer unreasonable” to anticipate debt doubling to 140pc. At that time, Mr Laubach’s calculations could see long-term expenses upward push by utilising 3.5 proportion factors. The learn is damning because of the fact Mr Laubach became into the Fed’s economist on the time, taking place to grow to be its senior economist between 2005 and 2008, while he stepped down. as a consequence, the doubling in expenses is the U. S. significant economic corporation’s very own prediction. " does not seem sturdy, does it?