Japan has been dealing with its economic problems more aggressively than ever since the mid-February meeting in Sicily of finance ministers and central bankers from the Group of Seven industrial powers.
During the meeting, Japan’s G7 partners urged the Bank of Japan to ensure ample liquidity in its financial markets and expressed concern over the Japanese banking system, which remains overburdened by bad loans.
The call prompted the ruling coalition, the government and the central bank to join forces in their efforts to get the economy back on track.
Worsening economic fundamentals forced the BOJ to ease monetary conditions with successive measures. On March 19, the central bank even decided to carry out quantitative monetary easing and effectively resume the “zero-interest-rate” policy.
The BOJ will maintain this policy until the consumer price index stabilizes at zero or above.
The Financial Services Agency is mapping out a raft of measures aimed at accelerating the disposal of bad loans by financial institutions.
The ruling coalition is meanwhile finalizing a package of emergency economic measures featuring changes to the stock-related tax system, the creation of a share-buying organ and urban redevelopment.
Although these and other policy measures include surprise moves as well as steps demanded by the market, the stock market rebound is unstable as market participants are skeptical about whether the measures will be actually carried out.
Such skepticism should be questioned, however, particularly as Japan was pressed by the U.S. to carry out structural reforms, during Prime Minister Yoshiro Mori’s March 20 summit with U.S. President George W. Bush.
At issue is the lame duck prime minister’s ability to carry out the policies. Nevertheless, Mori is expected to stay in office until mid-April.
And, should he actually start to introduce the policy measures aggressively, the market will change its view of him overnight and will probably regard him as a great leader, for taking crucial measures that have never been carried out in the past.
The Tokyo stock market is about to stage a strong rally.
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