May I ask after calculating the interest rate difference implied by the observed forward exchange rate is 3.28% (

Because from my intuition, the interest rate of US dollars could be overvalued or undervalued and interest rate of yen could follow after wards in order to create the observed 3.28% observed forward exchange rate, therefore, shouldn't we unable to come up with the conclusion that either the interest rate of currency is too high or too low?

Example : Covered Interest Arbitrage Example : suppose * denominated interest rate is 2 8 - denominated interest rate is 6 current ( $7 ) exchange rate is 0.009 The theoretical I - year forward exchange rate 0 .009 0 06 0.02 0.009367 Now , suppose the observed 1 -year forward exchange rate is 0.0093== == == == == Example: Covered Interest Arbitrage 0 1-year currency forward is undervalued 9 long forward and short synthetic forward 0 From another perspective, the interest rate difference implied by the observed forward exchange rate is r$ r = ln(0.0093/0.009) = 3.28%, instead of observed 4%. ' r$ might be too high (lend $) ' r might be too low (borrow ) 0 Covered interest arbitrage: borrow at 2%, exchange into $ and lend for 6%; long forward to buy at 0.0093$/ . 4.12