Japan's economy is the second biggest in the industrialised world after the United States - the third biggest if the European Union's economies are aggregated. Its health and strength matter hugely for the Asian region and the balanced development of the world economy as a whole. That is why it is important to pay close attention to its performance following the recession that resulted from the collapse of its bubble economy at the beginning of the 1990s.
The latest indications of Japan's economic condition, as reported in this newspaper today, show definite signs of recovery in certain sectors. As the US ambassador to Japan, Mr Tom Foley, puts it, this is "a very large and complex economy, so a lot of things are happening at the same time". Potentially the most significant change is the rapid development of the information technology sector based on the Internet, especially its application to e-commerce. It is growing by leaps and bounds outside established structures of economic regulation. This confirms the Japanese genius for innovating commercial application following its failure to become a world leader in the software revolution of the 1990s.
But as yet, there is too little evidence that this change will penetrate the rest of the economy which remains very flat, despite continuing strong exports and a recently soaring yen. In many respects, Japan's is a dual economy, divided between a formidably-competitive export sector and a relatively protected and highly-regulated domestic one much less exposed to international competition. Although the export sector continues to earn huge surpluses, international trade comprises only 11 per cent of gross national product. Mr Keizi Obuchi's coalition government has pumped very large sums into the domestic economy in an effort to stimulate demand. There is the possibility of a growth of about one per cent this year - hardly evidence of self-sustainable recovery. Public-sector debt has mounted sharply as a result of these policies, adding to the overall debt burden in the financial sector inherited from the collapse of the bubble ten years ago.
The fundamental problem is the failure of consumer demand to respond to these stimuli. In an economy of 120 million people with the world's second largest per capita income, it is a powerful force indeed. Major industries are being restructured with substantial job losses and an end to jobs-for-life arrangements. The resulting uncertainty and loss of confidence is deep-seated. Unemployment rates have reached 4.7 per cent, a figure concealing a lot of under-capacity and over-manning in public administration. The savings ratio remains extraordinarily high despite rock-bottom interest rates. Consumers believe they are subsidising the financial sector which bears most responsibility for the bubble economy and the subsequent deep recession.
Japan is a resourceful and highly skilled nation in search of a new vision following its tremendous achievements over the last 50 years. There are many convincing voices urging it to open up more to the world if it is to remain competitive. That process is slowly under way. But outsiders must understand that the commitment to consensus and social cohesion is a strong force for stability.