This should help to better absorb shocks and thereby improve the working of adjustment mechanisms in individual countries. In the context of EMU with a single monetary policy, the later the necessary national policy measures are taken to make the economies more flexible, the larger the potential costs can be in case of adverse shocks. How to enhance economic flexibility?
Most indicators remain negative, particularly in the manufacturing sector which is characterised by excess capacity, declining employment and falling inventories. Japan will be helped to some extent by an upswing in the US and Asia. What is clear however is that Japan will not be one of the locomotives of that upswing.