Heidi Jensen is attempting to determine whether US/Japanese financial conditions are at parity. The current spot rate is a flat ¥89.00/$, while the 360-day forward rate is ¥84.90/$. Forecast inflation is 1.100% for Japan, and 5.900% for the US. The 360-day yen deposit rate is 4.700%, and the 360-day dollar deposit rate is 9.500%.
A) Calculate whether interest rate parity, purchasing power parity, and international fisher effect conditions hold between Japan and the US.
B) Find the forecasted change in the Japanese yen/US dollar exchange rate one year from now.