The announcement that the governor of the Bank of Japan was considering the purchase of company shares held by Japanese banks at market prices has done nothing to reassure opinion in Britain about the state of the Japanese economy. The general view remains, to quote the Financial Times, "that price deflation is public enemy No. 1 for the Japanese economy," but no one seems to think that the BOJ's declaration, unprecedented for any central bank, provides the answer to Japan's problems.

The skeptics think that this is basically a ploy to stop the stock market falling and help Japan's commercial banks to demonstrate that they have adequate capital to tide them over the half-year financial period ending Sept. 30, when they must book latent losses from falling stock prices; in other words, that it is simply a stopgap measure. But the pessimists suggest that this is more than just a ploy. They say that it shows that the Japanese banking crisis, which has been apparent for years, is even more serious than observers had thought, and that without such drastic steps to prop up banking assets Japan's financial markets and financial system are in real danger of collapsing, thus suggesting that these are panic measures.

We must all hope that the pessimists are wrong and that effective measures can overcome Japan's banking crisis. The FSA have admitted that Japanese banks have nonperforming loans "worth" 43,000 billion yen. Most economists think that the "value" of nonperforming loans is at least double this amount and that as price deflation continues the amount is increasing all the time.