Domestic demand growth is the essential requirement for economic recovery because Japan cannot rely on an export-led recovery during the present global slowdown, and this is thus a crucial number to watch. If domestic demand fails to pick up and fades again, then the outlook for the economy is bleak indeed. This is because the government has already used up its options. Let me explain. It is difficult to visualise any more being done along these lines.
Interest rates are already almost at zero.
Little more than a truism perhaps, but that fact that he felt the need to make the point is significant. These fiscal and monetary measures are mostly classic Keynesian. I have argued vigorously and consistently that both reason and the lessons of history make a nonsense of this Keynesian economic theory. Therefore I do not expect to see a sustained recovery of economic demand immediately ahead. I have also argued that the only cure for a deflationary recession such as Japan's is an economic clean sweep.