Japan: Naoto Kan might be seen as mirroring his country's current weakness. Prime minister only since June he has just survived a ridiculously early leadership challenge. Japan is unhappy, looking for a way forward, and not finding it. The economy has been weak for 20 years and remains dogged by deflation. Kan's enormous task is somehow to find policies that end the weakness - without resorting to still more fiscal spending, as his rival suggested. "What can you do?" is the markets' question to Kan.
Short term, he can perhaps get lucky. The yen has risen as a safe-haven play, favoured by double-dip fears and unusually low yields in US markets. But some better global economic data is pepping up risk appetites. The yen's strength might well fade without any need for intervention. And if global growth persists into 2011, that, too, will help Japan's exports and growth.
But for a solution to deflation deeper reforms are needed. Kan must try to innovate. He can legitimately apply pressure on the Bank of Japan. Unusually among central banks, it does not have an inflation target. If it had one, it would be failing badly. Consumer prices are down by 0.9 percent in the past year. The U.S. Federal Reserve, the Bank of England and the European Central Bank would all be stimulating in such circumstances. The BoJ does not appear to feel compelled to do much at all.
Its indifference is thought to reflect a wider problem among Japan's bureaucrats. Stagnation is not addressed. Part of Ozawa's appeal was that he intended to kick the bureaucrats. Kan might learn from that.
The BoJ, for its part, might print more money and reduce still further the return on "safe" assets such as government bonds. That would force investors to turn elsewhere, towards riskier investments - including overseas ones. Another of Ozawa's better suggestions was that encouraging Japanese investment overseas could weaken the yen more substantially and help to push up import prices.
The BoJ ought to be able to get the yen down and inflation up. Perhaps the Fed's Ben Bernanke could spare time for a bit of consultancy.
