The Asian crisis has both involved Japan and exposed it to powerful international criticism. The Japanese government, it is argued, has put pressure on other countries in the region by pursuing a policy of yen depreciation and then, just when additional growth was needed, imposed mistaken tax cuts on its economy. Moreover, Japanese banks were culpable in their lending activities to the rest of Asia, channelling funds too readily for projects in the region and contributing to the over-investment in Asia which lies at the root of the crisis. Japan, for its part, points to policies put in place to alleviate both its own financial problems - a 30 trillion yen (£150 billion) support package for financial markets and a two trillion yen (£10 billion) tax cut. The criticisms, however, persist.
Prior to the crisis, Japan appeared to be heading for growth of about 2.5% in 1998. Now, say forecasters, zero is likely to be the best that can be achieved. According to Fred Bergsten of the Institute for International Economics: 'Japan accounts for about two-thirds of the entire Asian economy.
It is already in recession and is likely to experience zero or negative growth in 1998. Despite the government's recent initiatives, there seems to be little chance that sufficient policy changes will be adopted either to restore stability to the banking system and thus an effectively functioning credit market, or to convert the country's restrictive fiscal policy into the needed stimulus.'
Japan's problems pre-date the wider Asian crisis. The spectacular rise, and collapse, of the 'bubble economy' of the 1980s has resulted in a prolonged hangover during the 1990s. An economy that achieved a stunning growth performance in the miracle years abruptly shifted down to a mediocre performance.
This, in turn, has brought with it severe pressures on the corporate sector - the old system of lifetime employment now exists mainly only in name - and on investors. Japan had asset price deflation in both property and shares before the more recent general deflation. Strains in the banking and financial systems, the 'credit crunch', contributed to the failure of Yamaichi last year.
To such problems has now been added the Asia crisis. For Japanese companies, which invested heavily elsewhere in the region to minimise the competitive difficulties created by the yen's earlier strength, stagnation in Asian economies, collapsing consumer demand and sharply lower local currencies, the direct consequences are severe. For the economy, facing at least a two-year recession, relief will be painfully slow.
The Bank of Japan, having pursued a policy of ultra-low interest rates, is powerless to stimulate the economy. The government faces the problem that, even if it was to introduce a more substantial programme of tax cuts and higher public spending, there is no guarantee it would have the desired effect.
So much has confidence among consumers and businesses evaporated, say some analysts, that a fiscal expansion would have only a muted impact on the economy. Individuals, for example, could spend rather than save any tax cuts coming their way.