Back to Reality

After nearly two years of stubborn optimism, Japan's economic recovery seems to be skidding to a halt. Last week's government figures showed that the country only narrowly avoided a return to recessiondefined as two consecutive quarters of decline in gross domestic productwith 0.1% gdp growth in the third quarter following a 0.1% contraction in the second. "We are entering a slow patch, and there is no obvious exit," says Peter Morgan, chief economist at HSBC Securities in Tokyo.

Blame it on Japan's ever reluctant consumer. Household spending has long been the missing piece in Japan's recovery puzzle: every...