If the Domestic Prices for Traded Goods Rises 5% in Japan

If the domestic prices for traded goods rises 5% in Japan and rises 7% the US over the same period, what would happened to the Yen/US dollar exchange rate? HINT: S₁/S₀ = (1 + $\pi$ _h) / (1 + $\pi$ _f) where S₀ is the direct quote of the yen at time 0, the current period.

A) The direct quote of the yen ($/¥) rises, and the value of the dollar falls.
B) The direct quote of the yen ($/¥) falls, and the value of the dollar rises.
C) The direct quote of the yen would remain the same.
D) Purchasing power parity does not apply to inflation rates.
E) Both a and d.