In Europe, we get to hear a lot about the thinking and the discussion at the monetary policy meetings of the Bundesbank, the Bank of France, the Bank of England, the Federal Reserve Board and the others.

But we rarely see how the Bank of Japan (BoJ) thinks - and the effect it has on the rest of us as a result.

With basic interest rates close to zero, it would seem there's very little for the BoJ to discuss. Not so. The signs from the last meeting, reports French investment bank Paribas, are that things could yet get worse.

Rodney Smith: "Prompt action is essential"

Alarmingly, the BoJ reckons that the what it calls the negative momentum, in the economy - the unwillingness of the Japanese consumer to go out and spend - has cancelled out the positive effects of record low interest rates and tax cuts.

The Bank does not refer to the spending vouchers in the latest financial package. The government accepted them as the price of support by a minority coalition partner. But even the usually uncynical Japanese must be laughing up their yukata sleeves at that one.

The Bank does not refer either to the closing gap between the reforming Liberal Party and the ruling Liberal Democratic Party.

The Liberal Party, though small in the Diet, favours accelerated reform of the banking system which outside observers agree is essential to unfreeze the Japanese banking system - and get cash back into the economy to get it moving again.

The Liberals are tacitly supported by the BoJ, because the Bank does recognise that the revitalisation of the banking system is pressing and that prompt action is essential.

That the Bank feels there is little that it can now do to help the economy. This becomes apparent in its conclusion that it cannot now adjust monetary policy.

Fiscal policy 'the answer'

It even seems to believe that that is no longer the issue. The answer lies with fiscal policy, which means cutting taxes, and with revitalising the financial system. And that is in the hands of the politicians, not the bankers.

So all attention now is directed at the next add-on to the last financial package. As Paribas points out, another three to four trillion yen of tax cuts would bring the total to about ten trillion yen, or about 2% of output.

But the politicians are still not listening to the bankers. Chief Cabinet Secretary Hiromu Nonaka has warned that the Treasury cannot see the room for another cut in sales tax - a much more realistic option to many economists than spending vouchers.

Meanwhile, the government continues to lose credibility among the voters. Prime Minister Keizo Obuchi's cabinet has scored yet lower public confidence ratings, a clear sign of the public's lack of confidence in the government's ability to manage the economy.

This is all happening very far away from Europe, but the days are far behind when the Japanese economy, one of the most powerful economic engines the world has known, could shimmer and shake in isolation.