JAPAN: Taking a Lower Road

The old Japanese definition of "recession"—anything less than 10% annual growth—is now old-hat. Japan is suffering from an unmistakable, deliberately engineered recession, the first step in what Deputy Prime Minister Takeo Fukuda calls a "long and traumatic" transition "to an era of low, stabilized growth."

Early last year the ruling Liberal Democrats determined to put Japan through an anti-inflationary wringer by slashing government spending and boosting interest rates, thus suppressing consumer demand. The policy worked: Japanese wholesale prices, which were zooming up at an annual rate of about 35% a year...

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