mp3bu

the arbitrage free forward price is spot*(1+rfr$)^(3/12)/(1+rfr yen)^(3/12) = 0.00816

since the quoted forward price is lower, the yen is undervalued and hence you would buy forward yen (long yen)

if you are long yen, you would buy 1 yen 3 months from now through the forward contract

you could therefore borrow 0.99264 yen today at 3% rfr. the repayment would be 1 yen [0.99264*(1.03)^(3/12)] - 3 months from now. this can be repaid through the 1 yen you would be buying through the forward contract

0.99264 yen today can be converted to 0.99264*0.00811=$0.00805 at todays spot rate

invest $0.00805 at 5.5% for 3 months = 0.00805*(1.055)^(3/12) = $0.00816 - 3 months from now

of the $0.00816 you get 3 months later, use $0.00814 to purchase 1 yen through the forward contract and repay the 0.9926 yen borrowed at t(0) - repayment with interest = 1 yen

that leaves you with $0.00002 - arbitrage free profit