Among the industrial countries, Japan is the one most affected by the spillover effects from its Asian trading partners. Not only are its trade links with them important, but this external shock comes at a time when the Japanese domestic economy is much less buoyant than was anticipated earlier.
Substantial loan exposure by Japanese banks to the Asian region has also weakened an already ailing financial sector in that country. But it is important to note that Japan has the financial wherewithal to deal with its banking difficulties and that a series of measures to combat these problems and to strengthen the economic recovery have already been taken.