Japan Shrinks, Asia Trembles

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So the Rising Sun is officially shrinking. Two consecutive quarters of negative growth, announced Friday, have tipped Japan into its first financial year of recession since the oil crisis of 1974. But this time the statistics are a little late with the story: "Japan has effectively been in a depression for four to five years," says TIME business columnist Daniel Kadlec. "They've been in a psychological recession since the stock market peaked in 1989. People who put all their money in equities then will never recover."

Which, for like-minded Americans currently walking tall on Wall Street, is a sobering thought. Still, hard times in Tokyo can be good news for U.S. investors. "The time is coming when you should be buying Asian stocks," says Kadlec, who recommends placing around 5 percent of your portfolio in the troubled region. A tumbling yen also helps keep inflation down stateside, not to mention making it a little cheaper to vacation in the land of cherry blossoms.

But there's no comfort in South Asia, whose leaders already know how domino-like recessions can be. First to tumble will likely be Malaysia, which was hoping for a low-interest $1 billion or $2 billion loan from its Far East financier. Fat chance of that now. And Japan itself? Prime Minister Hashimoto easily survived a no-confidence vote Friday -- but when it comes to the elections next month, all bets are off.