Japan is struggling with collapsing export volumes. Given that it is a value adder then if exports fall it follows that imports must fall also. If it succeeds in devaluing it's currency that is also an inhibitor to imports. Australian exports to Japan make up something like 16% of Australia's total exports.

The wider connotation is that Japan is the 3rd largest economy and that if it falls could it start a domino affect.

2013 should be extremely interesting. Global economies have only gotten weaker since 2008. That's led to economies becoming considerably more hypersensitive to shifts in foreign economic policy.

Tourism was also expected to rise:

• However,  such expectations are partially offset by the upward revisions of the forecast

  inbound arrivals from USA and Japan (USA up from 1.3 per cent to 1.5 per cent for 2012–13

  and Japan up from 0.4 per cent to 1.7 per cent for 2012–13) due to the higher than expected

  historical data on total inbound visitor arrivals in 2011–12 and the continuing economic

  recovery and improved consumer confidence in USA and Japan.

Can't for the life of me see tourist numbers rising under these conditions.

Ok back for a few hours.

So lets address your complaint(s). Basically I ignore your supporting points.

Lets look at the magnitude of the problem first and I'll denominate this in USD terms so we can all get our head around it. Japan, like others, has a fundamental problem. It spends more than it earns. I'll repeat that …. JAPAN SPENDS MORE THAN IT EARNS. And again for clarity..JAPAN SPENDS MORE THAN IT EARNS.

It's done this for so long now (decades) that it's managed to accumulate the biggest debt in the world compared to income. It has a $14T debt serviced by a $5.8T income (and declining as of recent times). It spends 40% of revenue just servicing that debt and its one of the cheapest debts in the world (virtually zero interest).

Exports enable Japan to survive economically. It has no real tangible resources. It makes its living importing raw materials, value adding these and then selling its good into the worlds markets. Its a good business plan while the world is buying from you. Especially if global markets are growing in size (emerging economies) and value. 

So a little perspective. In 89 the Nikkei fell over taking property prices with it. That decline continued for over a decade and got a helping hand from the Asian Crises in 97. Things couldn't have been worse for Japan a triple wammy in many ways, property, stocks and then exports all got hit. The rest of the world was pretty much booming along on a credit fueled binge but poor old Japan just couldn't take a trick. The reality is though that if the rest of the world had been struggling Japan may well have fallen over then.

The end result was lots of debt and week balance sheets. Japan then progressed through what is euphemistically called the lost decade. Japan's problem is that it was never really able to recover its position. Instead of biting the bullet and taking some pain it chose what appeared to be the easy way out.. extend and pretend… kick the can. The theory then and still is today is that growth solves all problems eventually. Well Japan never really grew that much. GDP growth was always fairly anemic and inflation was held at sub 1% for the most part to reflect zero interest rates. 

So to summerise, Japan has huge debts, declining income and diminishing capacity to service its growing debt. In anybody's book that's a recipe for disaster.

So what has precipitated this thread is the fact that Japan's exports have taken a hit to the extent they now have export deficits. First time in 35 years. For an export dependent economy like Japans that a serious problem. The result of that is GDP contraction of -3.5% annualised over the last 2 quarters of 2012. That's not a contraction its a collapse in income. You rarely see contractions exceed -1% so -3.5% is about as serious as it gets.

Ziv you think I  simply dismiss your suggestions. Not true. I consider them then dismiss them as either insuficient or ultimately unworkable. For example you indicate Japan has a number of initiatives that it is using to resolve these problems and cite renewables as an example.

Heres the factual reality of that initiative. I use the term factual loosely because there are only (political/industry) projected figures and even they are extremely wooly.

• In line with last month’s decision, the country has plans that envisage the investment of Y38tn ($483bn) in non-hydroelectric renewable energy, such as solar and wind power, over the next two decades, plus an extra Y84tn in energy-efficient technology.

Lets put those figures in to context. That's around $75 billion/yr over 20 years

• This will come on top of the introduction in July of some of the world’s most generous low carbon energy subsidies, which have already spurred an estimated $2bn of investment.

We have a problem here straight away namely subsidies to enable an industry to exist. No where in the world do I know of any subsidised industry that produces a net benefit effect for an economy. 

• The tariff for power derived from unused wood for this fiscal year through March is 33.6 yen a kilowatt hour for 20 years compared with 14.59 yen industrial users paid for electricity during the 12 months ended in March 2012. The tariff for solar is 42 yen, the highest among industrialized countries. The tariff for wind is 23.1 yen and geothermal is priced as much as 42 yen for 15 years.

Look at those figures. They are asking companies who now pay 14.59y to jump to as much 42y (depending on energy source). Note Japan is note considered suitable for large scale wind farms and that's the cheapest renewable source of all.

One of the big drivers of solar uptake among households is feeder tariff rates (subsidies really). In Aus they were so popular the state governments' had to stop the programs and then cap the feeder rates then ultimately put a time constraint on the feeder rates because they would have bankrupted the state treasuries.

• Kyushu Electric Power, the regional monopoly on the southern island of Kyushu, says it has received more applications to sell it renewable power than it can process.

  By Aug. 31, households and companies had applied to sell it electricity from 830 MW of projects, almost the same capacity as a reactor at its idled Sendai nuclear plant.

  Kyushu has only been able to complete power supply agreements for 5 MW of capacity, a spokeswoman said.

It's early days but Kyushu has bought 830 MW but at this point only sold 5 MW. Not promising. Every one wants to produce but nobody wants to pay the high prices.

You could have a hundred of these initiatives and at they end of the day they still won't solve Japan's economic problems. The subsidies will add to debts. The economic activity generated may not generate sufficient taxes to cover subsidies. Japan has a problem competing with companies manufacturing equipment and technology in this space. It's a fairly crowded space so unless they had some kind of market advantage little will actually change.

These kinds of initiatives are simply politicians making themselves look like they're doing something constructive to keep the electorate happy. Economic reality is that nothing is changing. The same old causes and practices that preceded this problem still exist.

Japan is in its death throes. There is no real solution on the horizon that will save them. There is no other economy or even collection of economies that can backstop them. Every economic measure has been deteriorating for years ever so slowly. Things have started to accelerate over the last 6 months. You will see over the coming months ever more extreme measures to try and stabilise their position. By the end of 2013 I expect to see them on the ropes. It is not going to be pretty. They're going to throw another $225 billion into the pot. Australia will get a good dollop of that Japan will get zip ultimately. The idea that this stimulas package will generate 600 000 jobs is pure fantasy.

Japan approves $224bn stimulus package

The new measures approved by the cabinet aim to lift the economy out of recession and create 600,000 new jobs.

I'll leave it there for now. Next post I'll discuss your view that the Japanese are strong, resilient and capable of working their way back to prosperity and why that isn't really so.

Definitely not a brilliant discussion in  my book just a collection of miscellaneous comment with little context and partial truths.

For a start in 1997 the Asian Crises almost crippled Japan. It's banks were exposed and several large corporates where facing bankruptcy. One can argue the toss till the cows come home about how it was handled but Hashimoto was probably on the right track. Japan set the game plan on how to kick the proverbial can down the road. No one was prepared to take their medicine instead the corporates and banks would be allowed to suck the tax payer dry for the next few decades through bail outs and stimulus. 

For the best part of 20+ years Japans economic health has progressively deteriorated as credit expansion (debt) has been the preferred solution to cutting spending and living within their means. 

Whether Japan likes it or not austerity will eventually be imposed upon it by the markets. If 1997/98 was painful the next dose will be excruciating by comparison.

Your link was an anonymous reprint and retitling of 'Japan Steps Out' (New York Times)

PK is the village idiot of economics. Obama has Nobel for peace as does the EU. 

PK thinks minting trillion dollar platinum coins are a good idea and if you have a debt problem more debt is the solution

There's quite a few in the world of economics who tend to agree

http://austrianeconomists.typepad.com/weblog/2008/10/you-cannot-be-s.html

http://krugman-in-wonderland.blogspot.com.au/

http://www.zerohedge.com/news/ultimate-krugman-take-down

I like Andy Xie's analysis for the most part. He's in a group of China experts who are probably some of the best and frankly honest brains in the business. Judging how Australia fairs will be relative to everyone elses predicament. 

Australia is overpriced by global standards in every respect from currency to wages to property and anything related to productivity. The world's a big see saw and we're at the top of our trajectory. 2013 doesn't seem to be an unrealistic call as the end of that trajectory. It matches the system stresses in other economies. The only question is who will set it off and when.

A challenge for Australian leaders. Will the descent to equilibrium be steep or a gentle glide path? Interesting times and opportunity ahead for those not leveraged up to the gills.