Answer Happy

Suppose that the real interest rate in Japan and the U.S. is 1.50% Furthermore, assume that the nominal (1-year) interest rate in Japan is 11.50% while the nominal interest rate over the same time period in the United States in 7.50%, The international Fisher effect theory predicts that the expected inflation in the U.S. I 6.00% while the expected inflation in Japan is 10.00% From the perspective of the United States (expected U.S. Inflation minus expected Japanese inflation), the expected inflation rate differential between According to purchasing power party (PPP), using the U.S. as the home country, the Japanese Yen should by the same percent as the differential in inflation rates the two countries is