The global economic outlook remains dim despite the swift and decisive coalition victory in Iraq. In Japan the prospects are darker still, with deflation getting worse, not better. Stock prices are at their lowest level in about 20 years. Banks are still burdened with piles of bad debt. Prime Minister Junichiro Koizumi's structural reform initiative has yet to produce tangible results.

One ominous symptom of the deflation is the continuous decline in long-term interest rates. Yields on benchmark 10-year government bonds have remained below 1 percent since Dec. 16; last week they dropped to a record 0.635 percent. In the autumn of 1998, bond yields also dropped below 1 percent -- because of the collapse of the Long-Term Credit Bank of Japan and the risk of an economic meltdown in Russia -- but regained lost ground in nearly two months.

The basic reason for falling long-term interest rates is, of course, the Bank of Japan's super-easy monetary policy. The catch is that much of the extra cash supplied by the central bank is finding its way into government bonds, not corporate coffers. Commercial banks are buying these "safe-haven" securities because they are finding it difficult to secure creditworthy borrowers. With the stock market in a deep slump, institutional investors such as life insurers are also attracted by long-term bonds despite their near-zero yields.