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appreciation against the US dollars. The Bank of Japan deals with the
problems of Yens appreciation along with the problem of deflation by
reducing its interest rate to a negative value.
In theory, with a lower interest rate, the Yen will be a less attractive
currency in the foreign exchange market. When one purchases some
Japanese Yen, he will need to pay to keep and store the money. It would be
more rational to purchase some other currencies with higher returns. The
demand for Yen should decrease, and its value should depreciate.
However, in reality, we can see that the Yen appreciates. We should
note that the y-axis is the number of US dollars per Japanese yen. A lower
level means that one yen is worth more dollars. In other words, the general
trend is that yen is appreciating. Obviously the intended results of controlling
the yens appreciation is not reached. The policy is apparently not effective.