The transmission mechanism envisaged by the Bank is that these factors will lead to a reduction in real interest rates, thereby producing positive effects on Japan's economic activity and prices (Chart 2).
Part of the relative strength may reflect supply-side factors: a larger wheat crop in 2008 and the commencement of operation of an additional LNG compression train have both added to supply. There are, however, some particularly interesting developments in the pattern of demand for coal and iron ore. A large proportion of Australian iron ore goes to China and very little goes to Europe.