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.