ABSTRACT
For many observers the financial crisis had been mainly a crisis of the banking system in the Asian countries whereas Russia and Brazil had to cope with other structural problems. Japan's economy is in a deep crisis for the fourth consecutive year. Although there seemed to be the signs of a recovery in the summer of 1999 the outlook remains rather bleak as there was a severe setback in the last quarter with overall GDP figures falling. The nominal exchange rate of the Yen had already been overshooting the inflation and unit labor cost differentials with the rest of the world throughout the whole of the 1970s and the 1980s. If a strategy of pegging the exchange rate is adopted, the nominal interest rate is set so as to render — after adjustment for any differences in the rates of inflation — approximately the same real interest rate as in the anchor country.
