rd straight month it has done so. This was also the first report since September 1995 that the admitted that the economy is in a state of deflation. Deflation is the lowering of prices, and leads to lower corporate profits across the board. Deflation has a crippling effect on an economy, and demands an immediate and strong response. The report attributed this most recent downturn to lower industrial output and corporate investment (AP, April 13). Though this report was an improvement to the normally unrealistic forecasts from the bank, the Central Bank's response to the downturn is anything but realistic. The bank lowered already low interest rates to an effective rate of zero percent. In a familiar scenario, this has led to Japanese banks stampeding to get even more loans. The Central Bank of Japan sees this as but one step in their new, more aggressive stance. They are to be applauded for this, as it involves coupling the lower rate with economic packages designed to give Japanese firms a way to upgrade their devalued equipment, thus boosting industrial output. One package set a two-year deadline for major banks to dispose of their riskiest bad loans. These loans were taken out by the banks during the easy lending period of the mid-1980's. In the view of many economists, these loans are the very thing crippling the Japanese economy and holding the country back from a successful turn-around (The 21st Century Public Policy Institute, 1998).It seems that it would have been more appropriate for the Central Bank to hold prime rates at the previous level. This, combined with the deadline for repayment of the riskiest debt, may have been just what the economy needed to attain serious growth. As it stands, however, there exists no plan to hike the rate back up. The rate lowering has already had negative effects. The Nikkei, Japan's main indicator of investment health is in danger of falling to a 16 year low. It appears that e...
