Nevertheless, we are confident that monetary policy targeted on low consumer price inflation in combination with a floating exchange rate is likely to result in a weaker and less sustained asset price cycle than would otherwise be the case. The problems caused by asset price inflation have been well illustrated in parts of Asia in recent years.
It is at least possible that asset price inflation in Japan in the late eighties – the reversal of which has done so much damage to bank balance sheets in that country – was a consequence of monetary policy being kept too easy for too long, whether to appease the United States after the Plaza Accord or for some other reason I know not.