How does changing the interest rate impact the currency value, and are there things that Japan can do to raise the value of the yen regardless of what the rest of the world is doing?

Question

Used to be 100 yen to a dollar. Now it’s 150, but recently there was a 0.25% change to the interest rate and it brought it down ever so slightly to about 149. Are there no other alternatives? Are there down sides to doing this? Does the large amount of tourism in Japan have an impact on this?

In: Economics

Answer 1

If you raise interest rates, then people want to invest in your currency, but the people who live in your country get mad because of the inflation.

There isn’t any reason to want a specific exchange rate between two currencies. To get that, you have to be willing to spend a huge amount of cash to manipulate the market (plus it makes other central bankers mad).