Introduction

The Japanese economy by the end of Koizumi's tenure stabilized and reached a point of sustainable growth. Although Japan experienced several recovery periods since 1990 only to be followed by decline and instability, the recovery that started in 2003 has been more substantial. In the late 1990s and first year or two of the new century, there was considerable discussion about the potential for another decade of economic distress. As of September 2006, this type of discussion has all but disappeared. This does not imply an absence of economic and political challenges facing Japan in the near future. It does mean, however, that for the first time in a decade and half, the Japanese economy and political systems at the end of 2006 could realistically have a more positive attitude about the future. This view needs to be qualified to some degree because Japan's economic recovery has been based narrowly on the export sector, the political impasse and uncertainty that emerged with the LDP-CGP (Clean Government Party) government's loss of the majority in the July 2007 upper house election and the opposition parties' controlling the upper house, and continuing indications that the potential for deflation has not been completely rung out of the Japanese economy.

On the positive side, real GDP increased 2 percent in 2006, unemployment declined, although it still remained high by historical standards, equity prices increased, and, for the first time since 1991, real estate prices and rents in Tokyo begun to move upward.