For the first time this week a foreign country with substantial resources decisively and openly came to the aid of the US in the current financial crisis.
Scared by the rise in the exchange rate of the yen, which was threatening to seriously cut into the competivity and profits of Japan's export industries, the Japanese government openly moved. It was widely leaked that Japanese interest rates, already only at 0.5 per cent, would be cut to 0.25 per cent. Simultaneously the Japanese central bank began to sell yen, and more importantly to buy dollars, in order to try to drive down the yen's exchange rate.
The two moves opened the taps to Japanese money to flow into dollars and the US.
Japan is the country with the second heaviest financial artillery in the world to aid the United States. Its current account surplus is $197 billion a year and it has $997 billion in foreign exchange reserves. Only China, with a $372 billion balance of payments surplus and $1,905 billion in foreign exchange reserves, has greater financial firepower.
This means two considerable resources are now being deployed to attempt to shore up the US banking system. The first is the heavy burden, a major transfer of resources away from US taxpayers, i.e. ordinary people, which is involved in the Paulson bank bail out plan. Now Japan has joined in.
Japan's willingness to give open aid is, of course, a serious addition to US resources to meet the crisis and accounts for the sharp share rises on Wall Street.
Two issues are however still posed.
First, will even the combination of squeezing US taxpayers and Japanese aid be enough to stabilise the US financial system? At least at present the answer is that the situation within the US financial system is stabilised but at the expense of more peripheral parts of the world economic system having the financial blood squeezed out of them.
Second, what will be the consequences in Japan itself? The last time Japan was squeezed to aid the US was after the 1987 Wall Street crash. The reason the US economy was fairly easily stabilised following that crash was that Japan gave aid - in the form of a super lax interest and credit rate policy. The result was Japan's late 1980s bubble economy followed by a now 18 year long share market and property market crash and depression that followed from 1990. It will be interesting to see the price Japan will be forced to pay this time.