To remember how dramatically perceptions of Japan have changed it is probably necessary to be middle-aged (except for those with an unusually precocious interest in the Japanese economy). Back in 1989 the world looked fundamentally different from today. It was widely believed that Japan, which had been the fastest-growing major economy since 1950, would soon surpass America as an economic power. America’s free market model was generally seen as inferior to Japan’s system of state-directed capitalism. Meanwhile China, today central to the discussion of the global economy, was regarded as barely worthy of a footnote in the discussion.These perceptions have reversed in the decade-and-a-half that has passed since the end of the Cold War. America is generally regarded as a model of vibrancy – although the bursting of the technology bubble slightly tarnished its image – and Japan is seen as stultified. What lies behind this dramatic reversal? Clearly it partly tracks the changing fortunes of the two economies. Since 1990 the American economy has outperformed Japan – in contrast to the previous four decades, when Japan did much better. But this begs the question of why Japan has taken so long to recover from the crisis that followed the collapse of the “bubble economy” of the 1980s. A large part of the blame lies with the timidity of Japan’s business and political class. It has consistently hesitated before taking the necessary measures to restructure the economy. For example, the banks have been lenient on problem loans. They feared that if large amounts of bad debt were written off then many companies would go bankrupt, unemployment would rise and social harmony would suffer. A similar anxiety was behind the reluctance of Japanese companies to unwind their cross-shareholdings. The authorities were unwilling to take decisive action to encourage a change of direction. In the short term the reluctance of the elite to promote reform certainly meant less pain for the people. But in the longer run it has meant the problems have taken an extraordinarily long time to be resolved. Some 15 years after the bursting of Japan’s financial bubble, it is still dealing with the consequences.