The World Economic Forum released on Thursday a blueprint for revitalizing Japan's economy, calling on the Bank of Japan to introduce an inflation target and urging temporary nationalization of ailing banks.
It would be in Japan's best interest to carry out measures swiftly that combine the establishment of an inflation target with a brief nationalization of commercial banks and reforms in the country's fiscal and tax systems, the blueprint says.
The proposal was drawn up by a group led by Takatoshi Ito, a University of Tokyo professor and a former deputy vice finance minister for international affairs.
It says the economy could worsen in the first year of reforms following the swift implementation of stepped-up disposal of banks' nonperforming loans and putting banks under government control.
But the economy would start showing its potential for growth in a few years, the plan says.
Along with an inflation target, the blueprint says the BOJ should further ease its monetary grip through purchases of stocks and real estate investment trusts.
The blueprint spells out a "worst-case scenario" in which reforms are delayed and long-term interest rates rise sharply, leading to hyperinflation as well as a weaker yen and throwing Asia's entire economy into confusion.
The WEF began a six-day annual meeting Thursday in this eastern Swiss resort, with a pending U.S. attack on Iraq and Japan's economic revival high on the agenda.