November 03, 1998

Earlier in the year we argued that, by the process of elimination, Japan would eventually stumble into the "right" policy mix. That mix, we believed, would include a tax rate cut among other things. We also said that when the "right" policies were adopted, the yens real exchange rate would improve. We cautioned against being too early-against thinking the Japanese would move quickly to change policy, because the Japanese experience of the last seven or so years has been filled with policy initiatives that failed to solve the crisis. We argued further that, if the proper policies were adopted, the recovery would be a sustained one, and that the cost of missing the early stages of the recovery would be more than compensated for by the loss of returns of the previous aborted recoveries. Thats why we argued in favor of waiting until the recovery was on its way until jumping into Japan.

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