STEM major here. I saw this recently about how Japan raised its interest rates to .25%. Can someone please explain to me how this strengthens the yen? In addition to this why would the US increasing interest rates at this time decrease the value of the dollar? Please help me I’m lost here 😅 have a great day everyone!
In: Economics
All else being equal, a central bank increasing the interest rate makes a currency more attractive because relatively safe investments denominated in that currency (e.g. government bonds) now generate more returns (because the interest paid on those bonds have gone up), which means increased demand for the currency from investors looking to invest in those assets, which means the currency grows stronger.
Where have you seen the dollar suffer after increasing rates? The US dollar has appreciated considerable post covid precisely because the fed jacked up interest rates to combat domestic inflation.
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