Question

Why does the supply curve of Japanese yens slope up?

Answer 1

The supply curve of Japanese yens slope up, reflecting the higher price required to cover the higher marginal cost of production. When the exchange rate of yen in comparison to USD falls it leads to appreciation in currency appreciation. Consequently Yens become less competitive than the USD. When a country's home currency appreciates substantially, domestic and foreign sales decline; and margins also falls. Now to increase the demand same the Japanese Government increases the money supply. In the long duration as the real money supply is increased by fall in exchange rate over time the exchange will be at a higher position at same percentage as the money supply has been increased by; resulting supply curve of Japanese yens sloping up