When the Bank of Japan cuts rates in an era of increasing inflation because of imports for the first time in seven years in the vain hope of boosting the Japanese economy via domestic consumption, you know that there is going to be a very bad storm to weather ahead.
The second-largest economy is going to find it hard with an appreciating currency and extra debt acquired from the United States to maintain a decent hold on things. Japan's exports have become too expensive in the European Union and Australia. Thus it appears there will be a major slowdown in the Japanese economy amid the plethora of imports needed to feed, clothe and shelter a resource-less nation.
The Japanese must again liberally invest in safer foreign assets such as Australian resources, and finance to regain some momentum in the markets and to increase the flow of money in the global economy, particularly safer well-regulated areas. Japan does not have a current account deficit at present, and this gives it the optimum position to begin to save the world from the calamitous credit crunch.
Will the 0.2 percentage-point cut in the interest rate lead to much foreign investment in high-yielding currencies like the Australian dollar and South African rand? Only time will tell.
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