Japan has a large stock of government debt and has been at the zero lower bound many years after 2008. Suppose that, for whatever reason, international investors become less willing to hold Japanese government bonds and other yen-denominated assets. In other words, suppose there is an autonomous decrease in the demand for yen-denominated assets. Analyze the effects of this change to the Japanese economy and the answer the questions asked.

(Note: This Problem (Part IV) consists of 7 parts (questions), please follow the instructions provided and answer them carefully.)

1) In the graph below, supply and demand curves are drew for assets denominated in Japanese yen. The variable E is the exchange rate from the Japanese point of view, that is, the number of US dollars that you can buy with one Japanese yen. Please analyze why the supply curve of yen-dominated asset is vertical.

4) Issuance of currency is partially backed with US dollar dominated asset. Following part 3), if Bank of Japan (BOJ, central bank of Japan) is holding US dollar-dominated asset and tries to stabilize exchange rate between Japanese Yen and US dollar, JOB's target should be to

Blank 1. Fill in the blank, read surrounding text.

(increase,decreaseorunchange) exchange rate.

) Based on your answer in part 4) and 5), please briefly explain how would JOB achieve its target with dollar-dominated asset.

(Write down the short answer first, and briefly analyze your result)