Read the scenario below and answer the questions posed in well composed, thoughtful paragraphs. Ensure that you integrate course material into your response and take time to edit your work for clarity.

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The Japanese economy has been somewhat of an outlier in recent months. As a result many in the financial press have begun to take a closer look at the country, and the management of the economy by the Bank of Japan (the country's central bank).

The Bank of Japan has an inflation target of 6 percent. Last month the Bank of Japan reported that core inflation was 4%, the highest since 1991.

Much of the in country price increases are the result of higher transportation (oil) and food import costs.

1. What action do you think the Bank of Japan should take with regard to interest rates? Why is this the case?
2. The weak Yen has been pointed to as one reason for the relatively low levels of inflation Japan has experienced. What action could the Bank of Japan take in the FX market to affect the value of the Japanese Yen? The Yen currently trades at 1 CAD = 98.49 JPY.