Mired in its financial woes, and hamstrung by constitutional constraints, Japan has been forced to watch from the sidelines as global events unfold after the attacks in the US, analysts say.
Under its pacifist constitution enforced after World War II, Japan is barred from joining any global coalition put together by the United States to carry out retaliatory strikes for the attacks in New York and Washington.
Tokyo did decide Tuesday to join the unprecedented worldwide effort to help the markets badly jolted by the September 11 attacks by easing monetary policy.
But its move to cut the official discount rate to 0.1 percent from 0.25 percent is seen as largely symbolic as liquidity levels are already high and actual lending rates are at "ground zero", economists said.
The Japanese authorities "want to be seen at least to be trying something," said Noriko Hama, research director at the Mitsubishi Research Institute (MRI).
But "they are all superficial measures, nothing that can really reverse the situation in any way," she added.
The current impotence of the world's second largest economy mirrors its strategic weakness following World War II.
Even the simple logistics of supporting a US-led military operation off its coast would require a change of the law, something which the Japanese government is said to be exploring.
"The fear of being sidelined is driving the Koizumi team to do something beyond what is constitutionally allowed," said Hama.
Some economists and political leaders are also expecting the Japan central bank to break with convention given the exceptional times which the world is now confronting.
Long before the dramatic events of last week, the Bank of Japan had been flooded with suggestions -- to adopt an inflation target as a supposed remedy for the country's current deflation pressures, or a huge buy-up of assets of all kinds from government bonds to real estate.
"The likelihood that the US economy will fall into a recession in the wake of the terrorist attacks increases the odds that the BOJ will still have to resort to the buying of unorthodox assets just to combat the nation's intensifying deflationary pressures," said Ryutaro Kono, head economist at BNP Paribas Securities.
But he warned such purchases "would entail huge potential to do damage" both to the financial situation and to BoJ's reputation, as well as "greatly distort the market's mechanism."
The only thing that BoJ could safely buy would be the dollar, he said. Devaluing the yen "will have a definite and direct impact on raising inflation by boosting the costs of both exports and imports."
To have any effect, such purchases of the greenback must be on a larger scale than the modest operations launched this week to rein in the yen, he added.
However, a weak yen is not really the gesture of solidarity that the United States and the rest of the world is waiting for, said Robert Alan Feldman, chief economist at Morgan Stanley in Tokyo.
It "will not be very helpful for Japan either," he argued, adding "it amounts to a tax on Japanese citizens and a weak yen is not the solution to the banking problem."
Indeed, said Hama, the truth is that "Japan's bit is to get his house into order in the quickest possible way" which means finally tackling seriously the problem of bad debt which has strangled the banking system.
"The BoJ can say that they stand behind a more aggressive cleanup of the banks balance sheet," said Feldman.
"BoJ can provide the funds if the others guys are serious," he said. "If they are not, it cannot do anything” -- TOKYO (AFP)
© 2001 Al Bawaba (www.albawaba.com)
