Martin Wolf Says Japan Is Back

He writes:

FT.com / Comment & analysis / Columnists - Martin Wolf: Unreformed, but Japan is back : After almost one and a half decades of disappointment, growth is strong, deflation is vanishing and confidence is returning. Is this then the reward for Junichiro Koizumi's reforms? "Exactly the opposite" is the answer. In what way then is this an unreformed Japanese economy? It is still a Japan whose growth depends heavily on exports and investment, whose private sector saves far more than it can profitably invest at home and whose corporations waste capital. Japan is not recovering because it has a brand new economy: what has been achieved is a partial clean-up of the legacy of the bubble years.

Between the fourth quarter of 2001 (the last deep trough in gross domestic product) and the fourth quarter of last year, the economy expanded by 9.9 per cent, in real terms. Net exports generated an astonishing 30 per cent of the increase in demand, investment 18 per cent and government consumption a further 14 per cent (see chart). Private consumption generated a mere 39 per cent of the increase in demand.

The sharp improvement in net exports had two principal explanations: the depreciation of the real exchange rate; and China's demand for Japanese technology....