The rising sun

Maybe that will change in the months ahead, and maybe American voters will develop a different reaction to those contrasting images, should they continue. But for the moment, judging from many polls, it seems that President Bush is being rewarded for the economy8217;s tentative recovery more than he is being punished for Iraq8217;s troubling slide. I8217;m sure the Kerry camp was hoping for the opposite scenario 8212; a stable Iraq and a slumping economy that would start to recover only after November 8212; because it would play much more to Kerry8217;s strength with voters. But, for a lot of reasons, that doesn8217;t seem to be what8217;s happening, and the Kerry folks had better start positioning their candidate for the world we8217;re in.

I wish I had some smart advice. Alas, all I have is information. Even through my jet lag, I can see that the sick man of Asia, otherwise known as the Japanese economy, just jumped out of bed and is now running laps around the hospital. Everyone in the neighbourhood is watching, wondering whether the sick man has really gotten healthy or just an injection of Chinese steroids and will soon stumble again 8212; as happened before in the 1990s. No one in the neighbourhood is quite sure, even the sick man himself, but everyone is enjoying the show, especially the sick man.

There is evidence to suggest that, maybe, this Japanese recovery is real, is not just based on government spending and will last longer than previous wind sprints. I went to a briefing that Wal-Mart put on with its Japanese partner, Seiyu, a local store chain, about opening the first Wal-Mart-like big-box stores in Japan. No one ever believed that Japan8217;s rigid, small-shop economy would tolerate a discount big-box approach like Wal-Mart8217;s, where wholesalers get squeezed and everything from employees8217; pens to paper gets rationed.

But Japanese consumers, many so spooked by their faltering banks that they stuffed money in their mattresses, seem to be suddenly spending again 8212; their confidence bolstered by recent bank restructurings and better leadership from the Japanese central bank. The Nikkei 225 stock average jumped 47 per cent in the fiscal year that ended on March 31.

Because Japan much more than the United States has been able to hold onto a sophisticated manufacturing base 8212; like high-end steel, machine tools, cutting-edge electronics and industrial robots 8212; it8217;s been exporting like crazy to China8217;s start-up factories. This year, Japan8217;s trade with China surpassed its trade with the United States.

8216;8216;Two-thirds of the reason for Japan8217;s recovery is China,8217;8217; says the Japanese management consultant Kenichi Ohmae. China, and new Japanese plants in China, are sucking in so many Japanese exports there aren8217;t enough ships to bring it over fast enough. China is literally dragging Japan out of its slump.

8216;8216;There is also much more attention n Japan to restructuring than there was in the past,8217;8217; adds Jeffrey Young, Tokyo economist for Nikko Citigroup. 8216;8216;Companies are improving their efficiencies.8217;8217; And Japan8217;s workers have proved more adaptable in hard times than commonly believed.

The big test is: Can Japan continue to grow, based on domestic consumer-led demand, if and when the overheating Chinese economy starts to cool? Domestic wages and productivity are still lagging. And how does Japan deal with its huge fiscal deficit and still-weak banks, which will probably require more taxes from an aging, shrinking work force to sort out?

Only when we see that will we know whether the sick man has it in him to do anything more than run laps around the hospital.

8212; New York Times