At first, Japan was shielded from the credit crisis. Its conservative banks, though they paddled in toxic waters, were not nearly as exposed to poisonous assets as many of their foreign peers. But Japan was vulnerable because of its chronic export dependence. As world demand has faltered, its economy has seized up, plunging the political class into shellshock. Falls in the stock market are now causing problems in the banking sector, but a proposal by an industrial umbrella association to prop up share prices is misguided.
When Japanese exports dropped in December by an alarming 35 per cent, the game was up. Sure enough, output shrank 3.3 per cent, quarter on quarter, in the last three months of 2008. The rate of decline shows no sign of easing. The crisis – set to be the worst recession for 35 years – has been deepened by political inactivity and paralysis.