Downgrades to foreign growth affect the U.S. outlook through several channels. First, weak growth abroad reduces demand for U.S. exports. Second, the expected divergence in U.S. growth increases demand for U.S. assets, putting upward pressure on the dollar, which, in turn, weighs on net exports.
Economic Developments  Financial Conditions Lending Attitudes of Financial Institutions 30  Firms' Financial Positions  DI ("accommodative" - "severe"), % points  25  25  "Accommodative"  20  20 15  DI ("easy" - "tight"), % points "Easy"  15 "Severe"  10  "Tight"  10 5 5 0  0  -5  -5  Manufacturing  -10 -15 -20 CY 07  Manufacturing -10  09  Source: Bank of Japan.