Following the council's report, Mr. Matsushita sought to reassure those who worried that the MOF would retain too much influence over monetary policy. Whether the central bank's promised autonomy becomes reality is the crux of the matter. Confidence in the Japanese banking system is particularly low these days. In large part, the market's recent repudiation of banks reflects dissatisfaction with the MOF itself. Japan's worsening fiscal problems have convinced many investors that the ministry should get completely out of the business of setting monetary policy.
Japan is no model of fiscal rectitude.
By the end of next year, its total debt is estimated to be nearly equal to its GDP, making it the world's largest debtor nation. A more independent Bank of Japan should be given a clear mandate to contain inflation and safeguard the integrity of the banking system. It must face up squarely to the banking crisis and formulate a credible rehabilitation program, which may include allowing foreign banks to buy into Japanese ones. Tokyo's major trading partners can help out by being less testy about rising exports from Japan. If the country fails to revive its economy, the resulting banking collapses would do greater harm to the world economy than any trade imbalance.