The Japanese economy has been in a deflationary path since the "bubble economy" was punctured in 1993. As a large mondern economy, its decade-long economic slump is unprecedented. In pre-crisis days, the size of the Japanese economy was about half the size of the United States. Today, this has strunk to one third. However, Japan remains the second largest economy in the world and about four times the size of the Chinese economy. It is still the largest supplier of foreign direct investment (FDI) and has the most developed basic and applied technology in East Asia. Hence, the future of the Japanese economy would have far-reaching economic, political and strategic implications to the whole region.
Bold measures as always require a strong political consensus for conception and implementation. Unfortunately, this broad-based political consensus is absent. Procrastination in dealing with Japan's economic malaise has created policy conditions that make it increasingly difficult to adopt bold measures to achieve economic revival. The public seems resigned to the fact that there is only one more chance for the Koizumi government to really tackle the basic root of the economic malaise. However, as long as the ruling elites remain entrenched in their present mindset, policy analysts are pessimistic of even this last chance.
Within a regional context, an ineffective Japan would lead more strategic and political clout for ASEAN countries and lend relevancy to the ASEAN + 3 (ASEAN + China, Japan and South Korea) framework. But unless there is an external outlet for Japan's technological and financial resources, Japan's protracted economic woes a revival of extreme nationalism and militarism.
It is imperative therefore, to establish a regional framework that utilizes Japan's resources and technology for the common good of the region. Specifically, Japan can provide a regional balance with the emerging power of China and a common approach to respond to the manifestation of terrorism and the current phenomenon of the SARS outbreak in East Asia