Nonetheless, it is unsustainable in the long term. Monetary policy as it is currently set is ineffective. There is excess capacity in the corporate sector (and shortage of demand), and mild but persistent deflation means that firms are disinclined to invest and households are disinclined to spend.

Japanese politics is in stalemate, with an opposition LDP controlling the Upper House, and the new DPJ government still feeling its way into governing after 50 years of LDP rule. There have been 14 Prime Ministers since the bubble burst two decades ago, including Koizumi for five and a half years up to 2006, with nobody else lasting longer than a year since.

On top of these problems, the big longer term issue is that Japan’s population is aging and shrinking rapidly.

There is also evidence of Japanese society becoming increasingly inward looking, with the number of students studying abroad falling, and with Japan still attracting very little foreign direct investment. The fact that there was only one Japanese undergraduate in this year’s freshman class at Harvard made the news, and is symbolic of the problem. Although student numbers going to South Korea and China are increasing, as Japan grows closer to its neighbours, the overall trend is that study abroad is on the wane.

But in growing closer to its neighbours, there are strategic inconsistencies in the politics and economics of relations with China which may become more difficult to manage in the long term. Japan will also have to manage its alliance with the United States at the same time as its economic dependence on China’s growth becomes deeper and deeper. The political mess (both domestic and international) over the base relocation in Futenma is not a good start.

There is some sign of hope, as Drysdale notes in this week’s feature essay. With out-dated institutions and no sign of system change any time soon at home, it is the manufacturing sector, exposed to international competition, that ‘has achieved a remarkable turnaround’. ‘While manufacturing firms cannot change the institutions that impede adjustment, for example in the labour market, it has gone around them, creating others to serve the purpose’.

Japanese companies are leading the charge abroad and bringing in international expertise at home. Major Japanese corporations such as Nissan, Uniqlo and Rakuten now hold their headquarter board meetings in English, and half of their new hires in Japan are non-Japanese. Some companies have announced that they will have all their staff speaking English within two years.

Perhaps the rest of the country, and finally the government, will follow the lead of corporations in opening up to, and integrating with, the rest of the world, a course that seems critical to Japan’s escaping the impact of demographic shrinking at home.