Against this background, the Bank's assessment is that Japan's economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being. Real GDP contracted in the October-December quarter last year by 12.1 percent on an annualized quarter-on-quarter basis, the sharpest decline since the period immediately after the first oil crisis, and this figure supports the Bank's assessment.
Government bond yields have converged across euro area countries and are increasingly driven by common factors, although local factors continue to play a role [ECB, 2008c]. Indeed, the bid-ask spreads of sovereign bonds denominated in euro are not much higher than the spreads of those denominated in US dollar [Dunne et al., 2006].