Meanwhile, in Japan, the situation did not become so extreme. Japan’s financial markets were also affected significantly, but not in as extreme a fashion as the U.S. markets. As a result, the Bank of Japan’s balance sheet was not expanded as much as that of the FRB.
While exchange rates fluctuate due to a variety of factors in the short term, their trend over a longer term of 5 or 10 years reflects the difference in inflation between two countries. This is the concept of purchasing power parity.