Suppose that the dollar/yen exchange rate on 1/1/2015 was ¥120/$. One month later, the rate was ¥115/$. If the J-curve theory holds, which of the following situations would occur, all else being equal?
Japan's balance of trade would worsen, and then gradually improve.
America's balance of trade would worsen, and then gradually improve.
The balance of trade for both nations would remain constant.
Cannot be determined based on the information given.