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Tuesday, February 12, 2002

Japan in Deep Doo-Doo-I'll admit I'd only been paying passing attention to Japan lately, but some of the headlines I'd been seeing today are mind-boggling. Anti-deflation packages? Japan has what they called in macro class a "liquidity trap." The discount rate of Japan's central bank is zero. "Banks, you need money. Here-take it, give it back when you're done with it." The bank-to-bank LIBOR rate for Yen loans is 0.05%, while the US dollar LIBOR is 1.84% as per the Financial Times site a few minutes ago. This means that monetary policy has shot its wad, aimed the cannons at the economy like in an old Godzila flick, and saw it just bounce off. "General-what do we do now?" This leaves fiscal policy, cutting taxes and boosting spending to try and jump start the economy. Finance Minister Masajuro Shiokawa doesn't even want to promise 1% growth this year. They may need to clear out some of the economic deadwood, by incouraging more imports and freeing up their retail sector, but it may take a new government to do that.

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