Japan's Asian neighbors are also aware that the region's economic colossus has feet of clay. Japan's Miyazawa funds, designed to stimulate the purchase of Japanese exports in Japan's neighbors, have found few takers in recent months. Japan has also seen most of its Pacific Rim trading partners eschew new trade links with Tokyo in favor of lashing themselves to a seemingly unending US economic boom. This is unsurprising considering Japan's unwillingness to dismantle its outdated protectionist policies and its inability to stimulate consumer demand. By publicly abandoning financial reforms, Japan is sending a dangerous message.
Japan continues to borrow in order to fund temporary stimulus packages.
These stimulus packages create an economy dependent on continual government investment, which can only be paid for with more borrowing. Having exhausted the bond market, Japan has now resorted to higher-interest loans to perpetuate this vicious circle and make the Japanese economy even more indebted, and more out of synch with the rest of the world. Japan's day of reckoning is not far off.