Japan is back. After almost one and a half decades of disappointment, growth is strong, deflation is vanishing and confidence is returning. Is this then the reward for Junichiro Koizumi’s reforms? “Exactly the opposite” is the answer. If the prime minister had done what he initially proposed – pursue structural reform and cut fiscal deficits – the result would have been a catastrophe. Fortunately, wiser counsels prevailed.

In what way then is this an unreformed Japanese economy? It is still a Japan whose growth depends heavily on exports and investment, whose private sector saves far more than it can profitably invest at home and whose corporations waste capital. Japan is not recovering because it has a brand new economy: what has been achieved is a partial clean-up of the legacy of the bubble years.