Impacts and Changes in the Exchange Rate of the Japanese Yen - Based on Signaling Models

This paper examines the impact of Japanese yen (JPY) interest rates on the JPY exchange rate, focusing on the signal model within information asymmetry theory. Information asymmetry influences financial decision-making, and the signal model suggests that parties may use signals to convey private information, affecting market behaviors. Changes in JPY interest rates serve as signals, reflecting the Japanese economy's strength, inflation expectations, and central bank policies. Market participants interpret these signals, adjusting their trading strategies and influencing the JPY exchange rate. In March, the Bank of Japan ceased the implementation of negative interest rates. To gain a deeper understanding of the underlying factors influencing the dollar-yen exchange rate, the dollar one-month treasury bond and the yen one-month treasury bond prices, a regression and correlation analysis was conducted between April 2023 and April 2024.