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Readers' Voices - Volume 2

A global solution needed
to deal with the "Japan problem":
Comments on Kumiharu Shigehara's proposal
by a senior official of an international organization

April 22, 2003

Kumi,
I'm pleased to see you openly confront some tough issues. Yen exchange rate depreciation has long been the only plausible way to make monetary stimulus meaningful in Japan and is the obvious way to counter the persistent price deflation Japan has been experiencing. And a stimulus to exports will provide a stabilizing force offsetting some of the negative impact of difficult structural adjustments that are needed. Finally, in today's political context the strong Japanese lead that you recommend in the post-Doha trade discussions would be highly welcome.

That said, some questions occur to me. The case for a weaker dollar seems pretty strong and I would expect resistance in Europe to a stronger euro. Stronger currencies elsewhere in Asia could be consistent with this, and I think this may have to come onto the international agenda, although your eighth point would seem to envisage the opposite. Globally, the picture needs something more, I imagine monetary easing outside Japan.

Finally, I am doubtful about the operationality of your proposed windfall profits tax on depreciation-related profits. And even if it could be made to work I suspect it would be self-defeating by discouraging the best enterprises, i.e. exactly those you ought to be encouraging.

I welcome your effort to stimulate public debate about these issues and encourage you to continue.