The Wall Street Journal lists forward rates for Japanese yen. Say that the current listings are:
1-month forward rate (indirect) 103.17
3-month forward rate (indirect) 102.68
6-month forward rate (indirect) 101.88
First, is the anticipated inflation rate higher or lower in Japan compared to that in the United States? Second, if the current indirect rate is 103.37, what do the six-month rate and the current rate imply about the relative difference in the anticipated annual inflation rates? Finally, using the current indirect rate and the 6-month forward rate, determine the annual anticipated inflation rates for Japan if the U.S. inflation rate is anticipated to be 3.45%.