C.  Expansion of trade deficit and financial market stability  With regard to the downside risks to Japan’s economy, due attention should be paid to the continued trend in the expansion of trade deficit and its effects on financial markets.
This type of protection against counterparty risk is most effective when changes in risk are specific to the counterparty and not correlated with increases in risks to other counterparties and in other markets. In this case, the posting of additional collateral long before a firm reaches insolvency can provide valuable protection.