What the October crisis has made us aware of is that putting all one’s eggs in one engine of growth (pardon my mixed metaphor) is risky. Rebalancing the economy towards domestic demand is clearly key. Expanding and deepening intra-EME trade not just in goods but also in services is the other area where EMEs need to focus. Intra-EMEs financial flows are pathetically low.
On the domestic front, measures to restore Japan’s financial system, such as the injection of capital using public funds and the introduction of a special credit guarantee system for small and medium-sized firms substantially contributed to easing tightness in the financial market and corporate funding.