The Bank of Japan faces a dilemma of sorts.
On the one hand, it wants to maintain low policy rates to stimulate domestic demand and achieve a stable 2% inflation rate. On the other, it wants to correct excessive undervaluation of the yen and thus mitigate the erosion of consumers¡¯ purchasing power.
The former is intended to generate ¡°favorable¡± inflation built on sustainable domestic demand and wage growth, while the latter is aimed at exerting downward pressures on ¡°unfavorable¡± inflation driven by the higher price of imports, particularly food.
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