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Cablegate: Tokyo Media Reaction - Fed's Decision to Lower

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PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #3443 3530527
ZNR UUUUU ZZH
P 180527Z DEC 08
FM AMEMBASSY TOKYO
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RHEHAAA/NSC WASHDC

UNCLAS TOKYO 003443

SIPDIS

STATE FOR I/RF, PA/PR/FPC/W, IIP/G/EA, EAP/PD, R/MR,
EAP/J, EAP/P, PM;
USTR FOR PUBLIC AFFAIRS OFFICE;
TREASURY FOR OASIA/IMI;
SECDEF FOR OASD/PA;
CP BUTLER OKINAWA FOR AREA FIELD OFFICE;
PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO JA
SUBJECT: TOKYO MEDIA REACTION - FED'S DECISION TO LOWER
INTEREST RATE

1. LEAD STORIES: Top stories on Thursday morning
included OPEC's decision to slash oil production.

2. "Stop Global Deflation" On the Fed's move to lower
the key interest rate to near zero, the liberal Asahi
editorialized (12/18): "Fed Chairman Bernanke decided
on the rate reduction in order to head off a nightmare
scenario of the world economy being drawn into
deflation by the U.S. If the U.S economy were to fall
into a deflationary spiral, production and employment
would decline substantially. The magnitude of the
economic downturn would be so great that neither
monetary policy nor fiscal tools would be able to
reverse it. Such a development would unleash a
nightmarish chain reaction around the world."

3. "Bold Policy Should Be Undertaken with Utmost Care"
The liberal Mainichi argued (12/18): "Slashing interest
rates to zero is a taboo for any central bank, given
that it is tasked with managing the economy through
controlling lending rates. Any central bank would
hesitate to take such a step. Now that the decision has
been made by the Fed, however, it is hoped that it will
have positive effects. At the same time, there are
worries that this bold policy may have the side effect
of distorting the market mechanism. It is necessary for
the U.S. federal government and the private sector, on
top of the Fed, to mobilize all available means so as
to implement measures that will help revitalize the
U.S. economy."

4. "Fed Cuts Rates" The conservative Sankei asserted
(12/18): "By drastically reducing the key interest
rate, the Fed made clear its stance of doing its utmost
to shore up the economy. The financial markets welcomed
the decision with surprise. We hope the move will
result in increased confidence in the Fed and turn
around the bearish market sentiment."

5. "Fed Displays Courageous Posture to Overcome Crisis"
The business-oriented Nikkei insisted (12/18): "It is
still unknown to what extent the Fed's latest action
will improve the U.S. financial environment, which has
been virtually frozen.... However, it is important that
the Fed expressed its resolve to promote economic
recovery by using all available instruments. Together
with a proactive fiscal policy on the part of the
incoming Obama administration, the Fed's position will
help mitigate excessive market anxiety."

SCHIEFFER

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