Japan's Global Companies Thrive but Economy Withers

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Indeed, foreign businessmen have no problem spending a couple of years in hostile locations as long as they are compensated by good returns. However, the banker was ignored.

And that's the nub of the matter. Even if the doors were flung wide open for foreign investors, it's not clear what they would do in Japan. As exports falter in 2008, deflation may be returning to Japan and if you define deflation as falling prices and an expectation that prices will fall even further, then it is already here. Share prices have declined brutally fast and, earlier this week, commercial rents were reported to have fallen in Tokyo for the first time in six years. With Japanese banks owning 15% of the sagging stockmarket—they have successfully trimmed their real estate exposure after the lessons of the bubble years—and the stockmarket heading south, they are likely to get more cautious about making loans. As usual, this won't affect Japan's blue-chips given their close relationships to the top banks. But it will affect Japan's non-manufacturing small business sector, which has hitherto survived on a thin diet of ultra cheap debt financing.

Small manufacturing businesses that supply parts to the multinationals have been squeezed on the one hand by rising commodity prices over the past year, and on the other by ruthless pressure from the blue-chips to keep their costs down. The latter is happening partly in response to Western standards of efficiency being imposed by international shareholders, foreign CEOs such as Howard Stringer at Sony, and foreign owners such as Renault, which is the controlling shareholder of Nissan.

In the old days, the blue-chips used to reluctantly subsidise the domestic part of the economy by paying higher than global prices for a wide range of products. These days, the fragmented, underperforming domestic economy is not even benefiting from that, since the blue-chips have either 'offshored' or beaten down their suppliers. One of the first moves by Nissan after it was taken over by Renault, for example, was to reorganise its supply network.

It's a truism to say the situation is bleak in Japan. The real problem is the lack of faith that the country's leaders will come up with a solution.