Back in September, I noticed reports of Japan's economy reversing years of stagnation and decline. Obstacles remained, principally that of the will of Japanese lawmakers to enact market-friendly reforms or at least not strangle the private sector with tax hikes. Seven months later, Japan's economy is playing virtuoso. The Nikkei recorded the highest fiscal gains in 31 years on Wednesday, household spending is up while unemployment is down, Boeing is deepening ties with Japanese suppliers, and analysts believe the good times will not only continue but broaden to affect the entire market. And reform is still on Tokyo's mind:
Prime Minister Junichiro Koizumi's government has promised to overhaul the world's second largest economy by slowing the expansion of public debt, abolishing regulations and accelerating the disposal of 31.6 trillion yen ($303 billion) in bad loans held by banks.
When supply-side economists tell us that "a rising tide lifts all boats," our picture is usually a domestic one. But this is a universal adage: at the same moment America rises to 20-year economic heights, Japan's markets are looking up - and that's awfully coincidental for dumb luck. What can we expect? If politicians on either side of the Pacific leave entrepreneurs free to innovate, our two countries could become a very successful duo, indeed.