Japan's blind adherence to 'good recession' theory is killing the country softly. What Kiichi Miyazawa said was true but men in his position are not supposed to tell the truth, at least not that bluntly. So the next day he apologized.
Recent data confirm that Japan is caught in a fiscal and economic trap.
In particular, though economic logic suggests that the Bank of Japan can and should help Mr. Miyazawa with aggressive monetary expansion, the B.O.J. has devoted considerable effort to devising creative reasons why it can't and shouldn't. Indeed, Japan's central bank actually tightened the screws on the economy last summer, abandoning its previous policy of zero short-term interest rates. Now that it has become clear that goodness had nothing to do with it, the B.O.J. argues that since the interest rate is still close to zero, it can't do much to promote recovery. In fact, there's a lot that the B.O.J. could do. It could commit to a long- term policy of printing more money, so as to replace expectations of deflation, which depress spending, with expectations of moderate inflation, which should encourage spending.