Will Japan's large drop in gross domestic product in April-June, a 1.2 per cent annualised decline, prove to be just a temporary bend in the road or the harbinger of more to come?

The answer lies not just in Japan but also in the US. Despite talk that Japan has "decoupled" from the US economy, the opposite is the case. The turbulence in Japan's financial markets unleashed by the US credit crisis is just one sign. More fundamentally, Japan's current recovery is more dependent on US growth than any recovery in decades. That is because this recovery is extraordinarily dependent on exports. While Japan is steadily shifting its exports from the US to Asia, Japan's ability to export to Asia hinges on Asia's own ability to export to the US.