No, you’ve got a reasonable point Joerg. Japan may not be getting a self-sustaining economic recovery, but it does seem to have developed (for the time being anyway) a self-sustaining financial system. Quite how the markets will react if Japan doesn’t take off this time is not at all clear, but this is a very hard one to call. Japan is rich, and there is still plenty of juice in the lemon.

But Italy isn’t Japan, and it was the Italian situation I was thinking about. I just don’t see a solution to Italy’s sovereign debt problems short of default. Put if there is even a whisper of sovereign default in any one of the national euro-bond markets, then this will send shock waves right through the system, including flight into the relatively safer (dollar) assets. The ECB will be relatively powerless in this situation were it to occur for precisely the reason you mention.

(Or did you change your opinion and consider the yen to be equal to the dollar now?)

I think Oliver, mid-term, you can safely rely on the financial markets (and particularly the euro-bond markets for that). Capital flight from the dollar I don’t see, but euro-bonds, well…….