Keynes once used the term ‘liquidity trap’ to point out the possibility that the effectiveness of monetary policy might be hampered, and the current state of Japan’s economy is quite close to such a situation.
In fact, significant capital outflows and exchange rate depreciations already underway can hinder future growth. Protectionist measures directed particularly against large emerging economies may further decelerate world economic growth and create instability in foreign exchange markets. The third factor concerns Europe.