Japan needs to continue to take some concrete measures to strengthen its financial system, restructure the corporate sector, and reduce large fiscal imbalances. There is a growing perception that flexibility in exchange rate policies in emerging market economies in Asia is worth considering on pragmatic grounds but as appropriate to each country’s circumstances.
As the recovery gains further momentum, interest rates which are at historically lows, may have a tendency to firm up. The transition to higher interest rates would have to be managed carefully, particularly in countries with high household indebtedness and exposure to housing and mortgage markets. There is need for bold leadership in resolving some of the issues confronting the international community.