In December 2012, the Bank of Japan (BOJ) announced plan to increase quantity expansion (QE) of Japanese Yen, injecting 80 trillion Yen a year into financial system mainly through the purchase of government bonds (open market operation) in an attempt to support the troubled Japanese economy (in recession). The large increase in quantity of money was expected to have significant impacts on the Japanese economy. For a simplification of the analysis, assume that Japanese government keeps its fiscal policy and everything else unchanged. Given the increase in the quantity of Japanese Yen, answer the following questions. (a) Discuss how you would expect the increase in the quantity of Japanese Yen to affect the interest rate in Japan, value of Yen, demand for and supply of Japanese Yen, and the exchange rate (depreciation or appreciation) against Australian dollar. In your discussion, use the exchange rate diagram below as a starting point to explain your analysis and complete the diagram showing the movement of Japanese Yen against Australian dollar, A$/Yen. (hint: use demand for and supply of Japanese Yen). Exchange rates (AS/ Yen) Exchange rates (AS/Yen) So e0 Do Quantity of Yen traded (b) Discuss how the change in the Japanese exchange rate is expected to influence exports, imports, and the current account balance (improve or worsen) of Japan and Australia