Final answer:
The increased popularity of Japanese video games compared to American games leads to a decrease in demand and an increase in the supply of US dollars in the exchange market. This results in the shift of the demand curve to the left, the supply curve to the right, and a fall in the nominal exchange rate of the dollar.
Step-by-step explanation:
When Japanese video games become more popular than American games, it affects the demand and supply in the currency exchange market. More specifically, if Japanese games are in higher demand worldwide, this implies that more individuals will need Japanese yen to purchase these games. As a result, the demand for Japanese yen on the international market would increase. Since we are looking for effects on the US dollar market, we would analyze the opposite effect; the demand for US dollars would decrease, as there would be less need for dollars to purchase American games. Consequently, the demand curve for US dollars in the foreign exchange market would shift to the left.
However, considering the supply of dollars, individuals would be more likely to exchange their dollars for yen to buy these popular Japanese games. This would increase the supply of US dollars in the foreign exchange market, shifting the supply curve to the right. These shifts would result in the nominal exchange rate of the dollar to fall, making US dollars cheaper in terms of foreign currencies.