But we have been paying close attention to Japan's economic difficulties in recent years, both for their own sake and for their impact on the rest of Asia and the world economy. Just last month an IMF team was in Tokyo to discuss the policy challenges, an exercise we conduct regularly with each of our 182 member countries. Important steps have already been taken to avoid your nightmare scenario. Nonetheless, more needs to be done.
Corporations remain over-indebted and burdened with too much capital stock.
Meanwhile, the banking system is still unable to fulfill its normal functions. While the rapid accumulation of public debt is a serious problem, fiscal tightening would be premature while the economy remains fragile. But it will be hard to achieve until growth is firmly re-established. Similarly, the Bank of Japan should maintain zero interest rates until recovery is locked in. We are not there yet.