For Japan, a Long, Slow Slide

Pedestrians are reflected on a market board in Tokyo. Following a decline of 12 percent in 2007, Japan's stock market is off 11 percent so far this year. (By Katsumi Kasahara -- Associated Press)

"People here are rich, happy, safe and clean," said Oki Matsumoto, chief executive of Monex Inc., an Internet investment company. They also have more savings in the bank than residents of any other major wealthy country.

And that is precisely the problem, according to Matsumoto and many others who worry about Japan's future.

"Although the situation is not good, because it is not so bad, people from top to bottom remain indifferent," said Minoru Morita, a political analyst in Tokyo. "The leaders in this country don't expect too much and they are very good at adapting to a new environment, even if that means a downward spiral."

Economists here say that although Japan's economy is growing, it is not growing nearly fast enough to keep pace with other countries, especially booming China and much of the rest of Asia.

Japan, in many ways, continues to keep out foreign capital and foreign management. It ranks last in foreign direct investment among the 30 members of the Organization for Economic Cooperation and Development, and second to last in venture capital investment.

Its market for initial public offerings is shrinking because of onerous regulation, according to the Nihon Keizai Shimbun, the country's leading financial newspaper.

As stock markets boomed across the rest of Asia last year, stocks here declined by nearly 12 percent. They are off another 11 percent so far this year. Two major investment firms here say Japan has fallen into recession.

Many foreign investors are pulling their money out of Japan and looking elsewhere for good long-term return, said Hiromichi Shirakawa, chief economist in Tokyo for Credit Suisse.

"Japan has failed to generate any interesting investment themes," he said. "Inside this country there is a very limited sense of urgency."

Shirakawa says there are good reasons to be urgently concerned, even about the one area of Japan's economy that remains relatively strong: manufacturing.

"Over the medium to long term, I think that Japanese manufacturers cannot survive because of international competitive pressures," he said.

In the classes he teaches at Tokyo's Keio University, Shumpei Takemori compares Japan's passive acceptance of economic slippage to that of a frog swimming in a dish of slowly warming water. "Our problem is that the frog is already boiled," said Takemori, a professor of economics. "It doesn't have enough energy to jump."