The fall of the yen may help Japanese exports, but it causes a world of trouble elsewhere. That in turn puts further pressure on the currencies of those countries, threatening another destabilizing round of devaluations like the one that touched off the crisis last year. With the prospect of plunging currencies, foreign investors are reluctant to put their money at risk, making it hard for these countries to find the private-sector investment funds they so desperately need to get their economies going. Ultimately, the biggest danger is that China's exports might falter, leading Beijing to devalue its currency. Such a move could shake the economy of Hong Kong, touching off waves of competitive devaluations and producing deflationary pressure throughout the global economy.
Some observers believe that Japan has already hit bottom.
But even Jerram expects the Japanese economy to expand by no more than 1.5 percent annually over the next five years. Most observers are far gloomier, especially in the wake of a series of depressing economic statistics that emerged last week. That is because retail sales fell by half a percentage point compared with those of the previous year. This all indicates an even steeper decline of industrial output in the months ahead, as manufacturers adjust to falling demand. Robert Feldman, economist at Morgan Stanley, expects Japan's economy to decline by 0.7 percent this year.