34 The explanation for the persistent divergence between actual and expected inflation in Japan is not clear, but I believe that it illustrates a problem faced by all central banks: Economists’ understanding of the dynamics of inflation is far from perfect. Reflecting that limited understanding, the predictions of our models often err, sometimes significantly so.
This will be the case to the extent capital flows in in pursuit of short-term profits. Should the risk of capital exit materialize, the exchange rate will become volatile causing knock-on macroeconomic disruptions. Monetary easing in the context of a large CAD 53.