Adjusting to changes in the level of short-term interest rates can also pose challenges to community banks. Thus far, the relative stability of community bank net interest margins suggests that they have done a good job of managing their interest rate risk exposure throughout the recent increase in market rates.
The diffusion index (DI) for output prices in the December Tankan shows that an increasing number of firms have raised prices recently (Chart 8). This is due to the substantial increase in input costs led by the rise in import prices.