Europe does not satisfy either of these conditions. Unlike the United States, which accounted for half of world growth in 1998, Europe is unlikely to be a true growth locomotive in the current downturn. The news from Japan has been unrelentingly bad in the past few months. The stock market has reached 15-year lows. Bankruptcies have skyrocketed.
Consumers are scared and, therefore, reluctant to spend.
It is fair to say that Japan is, if not in, at least close to being in a recession. The most troubling aspect of the near-term outlook for the Japanese economy is the lack of policy options. Many analysts are seriously concerned about a Japanese debt trap. In the end Japan may have no choice but to stimulate both fiscal and monetary policy anyway. If the economy continues to slide and the banking system goes into another crisis, the BoJ is likely to pump a large amount of liquidity into the economy.