Thus, the impulse response functions suggest that the monetary policy has been sensitive
not only to inflation and output gap but also to exchange rate. The size of the shocks, when
it is taken into account the scale of the variables, indicates the importance of the exchange
rate targeting. This result is consistent with the estimated long run reaction function, which
suggests that the BOJ has implicitly targeted exchange rate stability rather than explicitly
targeted price and output gap stability. Final evidence is presented in the next section, with
the historical decomposition.