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Suppose that the real interest rate in Japan and the U.S. is 3.00%. Furthermore, assume that the nominal (1-year) interest rate in Japan is 12.50%

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Suppose that the real interest rate in Japan and the U.S. is 3.00%. Furthermore, assume that the nominal (1-year) interest rate in Japan is 12.50% while the nominal interest rate over the same time period in the United States is 4.50%. According to the international Fisher effect theory, the expected inflation rate in Japan is 9% while the expected inflation rate in the U.S. 15

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