IN order to stabilize the long-term interest rates and sustain the recovering economy over a long period of time, it is essential that the American government puts its house in order not merely by raising interest rates but also by cutting the budget deficit.
What should not be forgotten is the part to be played by Japan. Unless Japan buckles down to tackle the reduction of its trade surplus in earnest, apart from the intention of the American government, there will be a glut of dollars in the money market, with the possibility of recurrent pressure toward a higher yen at any moment. It would be counterproductive to depend on America's economic recovery for Japan's export-driven economic growth. That will only invite further appreciation of the yen.