In the wake of the Japanese earthquake and tsunami in March 2011, the value of the yen increased sharply. According to the Economist: “The Bank of Japan tried to counteract that process, easing monetary policy in a bid both to support the markets and to prevent rapid yen strengthening from damaging the prospects of exporters.”
a. What dilemmas do Japanese monetary authorities face in this situation?
b. At the same time, the values of both U.S. and Japanese bonds rose. Why do you think this happened at the same time that the yen was strengthening?