Well, suddenly Japan's economy seems to be back in the news. The BOJ today lowered interest rates, inflation seems to have peaked (and deflation may be once more looming on the horizon), householding spending is in decline, employment is falling, exports are languishing as the yen hits one high after another against both the dollar and the euro, Prime Minister Taro Aso is (despite the perilously large size of Japan's debt to GDP ratio) preparing yet another counter-recession spending package (this time of some $275 billion dollars, with $50 billion in additional spending), and yes, above all, Japan already seems to be mired deeply in recession.
The Economist said the following:
WITH luck rather than skill, Japan escaped the bubbles in housing, credit and commodities. As Western banks suffered, Japanese ones even went on a small acquisition spree. But the (fairly) good times are over. The unwinding of the yen carry trade, in which investors borrowed low-interest yen to place in higher-yielding assets abroad, has helped to send the yen soaring (see chart). Exotic foreign-currency products sold to retail investors reinforce the currency's upward trajectory.
The stronger currency threatens the profits of Japan's big exporters, contributing to a stockmarket rout, which in turn is winnowing Japanese banks' capital. To alleviate the woe, the Bank of Japan was expected to cut interest rates from 0.50% to 0.25% on October 31st. But the economy will still get walloped.
Personally I would say - and despite the venerable opinions of the Economist - that there was nothing either especially "lucky" or even "exotic" here - if you look carefully you will find that the similarities with what is happening in Germany are absolutely striking. Both countries have a very high populationmedian age (43), both have congenitally weak internal demand (no credit expansion driven housing booms here), both are thus completely dependent on exports (with GDP growth folding in
