In a widely anticipated move, on August 30, 1990, the Bank of Japan raised the discount rate (the rate it charges on loans to financial institutions) to 6% from 5.25% in a move to reduce inflationary pressures in Japan. Many currency traders had expected the Japanese central bank to raise its rate by more than 0.75%. What was the likely consequence of this interest rate rise on the yen:dollar exchange rate?
The key to this answer is to focus on the operative term "widely anticipated" and recognize that the foreign exchange market already factors any ...
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