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With all of the fear, loathing, and envy directed by many Americans toward China—the world’s factory, selling 1 percent of its entire gross domestic product to Wal-Mart alone—it is getting harder to remember that just 20 years ago it was the economic rise of another Asian country that was inspiring an even greater popular furor: Japan. Audiences flocked to “Gung Ho,” Ron Howard’s folksy 1986 film about a Japanese corporation buying up an automobile firm in the Rust Belt. A few years later, Michael Crichton’s racy novel Rising Sun, imagining a Japanese plot to seize control of the U.S. computer industry, sold 200,000 copies. And congressmen were smashing Japanese-made consumer electronics—believed to be competing unfairly—on the lawn of the Capitol.

The pop-culture image of Tokyo as a hotbed of ravenous corporations bent on taking over the world has been replaced by a somewhat friendlier construction, though no less cartoonish: Tokyo as an exotic fantasy land, epitomized in the film 'Lost in Translation.'

Today, the pop-culture image of Tokyo as a hotbed of ravenous corporations bent on taking over the world has been replaced by a somewhat friendlier construction, though no less cartoonish: Tokyo as exotic (and not entirely comprehensible) fantasy land. Compare “Gung Ho” with Sofia Coppola’s 2003 indie hit “Lost in Translation,” in which Bill Murray and Scarlett Johansson escape their problems in the city’s luxury hotels and fuzzy-neon streets. Or consider the highly publicized show at the Gagosian Gallery in New York this spring that featured Japanese artist Takashi Murakami, known for what The New York Times calls “his smiley-faced flowers and colorful mushrooms” and his pop-art paintings of Daruma, the founder of Zen Buddhism. Murakami is a true talent and global phenomenon, but if we judge by the headlines, Japan for Americans today is known mainly for crazy fashions (popularized by singer Gwen Stefani and her “Harajuku girls”), bizarre customs, and a “lost generation” of videogame addicts. 

What Japan is emphatically not, at least in the public mind, is a serious threat to American economic vitality. Endearing images of former Prime Minister Junichiro Koizumi touring Graceland with President Bush in 2006 made the primetime news; a year later, current Prime Minister Shinzo Abe’s more business-focused visit to the United States did not.

But we ignore Japan at our peril. While China gets all the attention, Japan, still firmly ensconced in second place among the world’s economic powers, is quietly enjoying its longest period of sustained growth since World War II. Japan’s global brands have never been stronger: Toyota surpassed General Motors in car and truck sales for the first quarter of 2007, knocking it out of the world’s top spot for the first time in 76 years; patent royalties deriving from Japanese inventiveness hit $4.2 billion in 2006. Sony and Canon, Honda and Panasonic, Fujitsu and Hitachi: throughout the world, Japanese brands are respected and profitable. By contrast, despite the best efforts of personal-computer giant Lenovo and white-goods producer Haier, China has yet to build a single brand that most Americans could name. Japan is back.

Under the leadership of Junichiro Koizumi and his successor Shinzo Abe, Japan has dug itself out of the hole of the 1990s and early 2000s. An export-led upturn in 2002 has segued into a broad-based economic expansion driven by surging domestic demand. Gross domestic product growth of 0.1 percent in 2002—barely a pulse—stepped up to 1.8 percent in 2003, then 2.3 percent, 2.6 percent, and finally 2.7 percent in 2006, a pace that is being maintained today and remains comfortably above U.S. levels.

Such progress is all the more impressive considering how low Japan sank during the sclerotic decade known as the “lost years.” By 2001, the Bank of Japan had lowered interest rates to zero and people were paying banks to keep their money. Japanese commercial property had tumbled to two-thirds of its value from its 1980s peak, when the wooded imperial estate at the center of Tokyo was worth more than the entire state of California.

When Japan’s bubble burst, it took a painfully long time for reality to set in. During the baburu (or bubble), demands on workers had soared; the sarariiman (salaryman) was expected to be available 24 hours a day, enabling him to evolve into one of the highly admired kigyo senshi (corporate warriors). In exchange for this servitude, he was supposed to have a secure job for life. That all collapsed along with the economy.

Sawa Kurotani, assistant professor of anthropology at the University of Redlands in California, has written of “the death of the sarariiman way of life.” She says that Japanese corporations “began radical restructuring and downsizing to survive in global competition.” Suicide rates soared (they were twice the rates in the United States and higher than anywhere except the former US R and its satellites, plus, for some reason, Sri Lanka), with many cases declared to have been karojisatsu, or triggered by excessive stress. The most common method was tobikomi: jumping from a platform into the path of a train.

Richard Katz has observed of Japan (in his book Japan: The System That Soured) that “no society puts itself through wrenching transformation until it has exhausted all other alternatives.” By 2001, it seemed indeed that there were no alternatives left. With Washington distracted by the Middle East, China was fast emerging as the dominant power in Asia. China had overtaken Japan as East Asia’s main regional export partner, and Japan was sinking into genteel irrelevance.

In the late 1990s, for the first time since the Japanese defeat of the Mongols eight centuries before, Japanese realists had to admit that the country faced genuine competition within Asia.

Enter Junichiro Koizumi. He was nicknamed the “Lion King,” not only for his luxuriant mane of hair but also for his nationalistic pride and combative demeanor. Before Koizumi became leader of the Liberal Democratic Party (LDP)—which, except for a few months in 1993, has held power consecutively for nearly as long as the Communist Party in China—Japan had suffered eight leaders in ten years. If nothing else, Koizumi, with the third-longest tenure (more than five years) as prime minister in postwar Japan, brought to the country much-needed stability.

At the same time, he initiated a slew of long-overdue changes. Although hardly an antiestablishment figure—both his father and grandfather were LDP ministers before him—Koizumi demonstrated an unprecedented willingness to reconsider Japan’s economic and financial structures. In his first four years in office, he introduced a series of reforms that enhanced the functioning of Japan’s major banks and corporations, improved the financial health of individual households, and encouraged a rebound in the property market.

By 2005, the crucial remaining issue was to privatize the Postal Savings Bank, which, with $3.1 trillion in assets, 25,000 offices, and 260,000 employees, funded some 45 percent of all outstanding credit in Japan and a quarter of Japanese household savings, all tax-free. Jesper Koll, Merrill Lynch’s chief economist for Japan, described the postal savings system at the time as “the world’s largest experiment with financial socialism since Stalin.” And as the largest holder of government debt, the government-run system was artificially propping up Japan’s bloated infrastructure and construction industries.

While China gets all the attention, Japan firmly ensconced in second place among the world's economic powers, is quietly enjoying its longest period of sustained growth since World War II.

Koizumi, whose father and grandfather had both supervised the postal portfolio in their own careers, decided to stake his legacy on privatizing Japan Post. He won a narrow victory in the House of Representatives in July, but a month later 22 LDP rebels crossed the floor in the upper house to halt the legislation. He responded by sacking all 37 LDP parliamentarians who had voted against the measure and calling a new election, two years early. The campaign captured popular attention like no other in living memory, setting off an unexpected wave of support for reform. In addition to his economic program, Koizumi had two other unfinished initiatives: resurrecting Japan as a proactive international player with a sturdy security capacity—a process that his strong response to the terror attacks of September 11 had already set in motion—and reshaping the LDP as a modern, policy-driven institution responsive to a single leader rather than to countervailing factional chiefs.

The turnout for the 2005 election was 67 percent, up from 59 percent in 2003. A triumphant Koizumi announced to the media: “I have destroyed the old LDP. It has become reborn as a new party.” This “new LDP” had won 296 seats, up from 249. Only 18 of the 33 sacked rebels who had run again, as independents, were returned. The Japan Post carve-up was passed. A year later, Koizumi retired and stepped into history.

What was remarkable about the 2005 campaign was the way Koizumi fought it against his own party. He deployed his “female ninjas”—high-profile young women candidates—against the factional LDP old guard, accustomed to governing from smoke-filled rooms. “This was an issue-driven election, with structural reform hitting a responsive chord,” said Aurelia George Mulgan, a professor at the Australian Defence Force Academy. “The campaign also indicated that although Japanese are supposed, culturally, to favor consensus, they like strong leaders.”

According to Mulgan, the campaign also marked a shift in the LDP “from a rural-based special-interest party to a pragmatic, urban-based party.” The country’s modest rural sector, which for decades swayed LDP factions and held Japan back from full participation in bilateral and regional free-trade agreements, is losing its influence. After all, the average Japanese farmer is 67 years old.

The new prime minister, Shinzo Abe, shares both his predecessor’s ambitious agenda and his establishment pedigree: Abe’s father was foreign minister, his grandfather prime minister. What Abe lacks is the charisma and maverick appeal that earned Koizumi not just public adulation but also total control of the LDP. Abe’s relative lack of authority was underlined early on when he welcomed back to the party the rebels that Koizumi had booted out. But economic reform has already taken on a life of its own, with Japanese firms reviewing their jobs-for-life employment structure, cutting costs, and repaying trillions of yen of debt. Business confidence is back, and Japanese firms have begun shifting up the value chain toward “new economy” investments.

Meanwhile, Abe has turned the government’s attention to tax and pension reform, and to improving relations among the levels of government. For the financial year ending in March 2008, Tokyo expects tax revenues to rise 16.5 percent, with the primary deficit falling by 61 percent to $37 billion (less than 1 percent of GDP—a tiny proportion for a country that had been running 8 percent deficits as recently as 2002), enabling bond issuance to fall for a fourth straight year.

Without any oil or natural gas of its own, Japan has invested heavily in energy efficiency. Even if the price of oil exceeds $70 per barrel, Morgan Stanley economist Takehiro Sato says, Japan will still be “in fairly good shape.” Foreign managers are increasingly common in Japan, including Sir Howard Stringer, the Welsh-American chief executive of Sony, and, at Nissan, the Brazilian-born Frenchman Carlos Ghosn.

The introverted, inefficient service sectors—healthcare, education, leisure—are slowly opening up to competition, says Professor James Kondon of Tokyo University. Tim Harcourt, the chief economist of the Australia Trade Commission, has observed that the spending power of mature Japanese women remains largely untapped: “If you thought Bill Clinton’s ‘soccer mums’ were influential, wait until you see the economic power of Mrs. Hashimoto and her neighbors.”

The list goes on. Bank lending is on the rise; best-practice international accounting standards have been widely adopted. Even the keiretsu—the conglomerates like Mitsui, Mitsubishi, and Sumitomo that seemed destined for extinction—have demonstrated a renewed vigor, competing head-to-head with Chinese counterparts for the resources that Japan needs to feed its increasingly high-tech industrial sector. Japan’s economy, which remained in many ways highly idiosyncratic even at the height of its postwar rise, is, in short, becoming more “normal.”

Although even today only about 20 percent of Japan’s economy is globally exposed, the key difference is that its largest multinational companies are not the rare islands of success they once were. Now other firms in the broader domestic economy are competing and operating productively.

Throughout Japan’s history, economic reform has come about primarily in reaction to international competition. The industrialization of the economy in the late 19th century was the Meiji dynasty’s response to the 1853 arrival at Shimoda, just south of present-day Tokyo, of four American ships led by Commodore Matthew Perry.

While China’s decadent Qing dynasty sought to keep Westerners at bay, the Japanese ruling class quickly realized that national survival would depend upon embracing change. At the turn of the 20th century, Japan was engaging and defeating the European might of Russia in a high-tech war in northeast Asia.

In the aftermath of World War II, as Japan’s surviving elite pondered the wasteland of bombed factories and ruined cities brought about by its vainglory, a different type of global conquest was envisioned. At first a byword for cheap-and-cheerful manufactures (much like China today), Japan steadily developed its own sophisticated production methods, rebuilt its reputation, and climbed nearly to the top of the global economic ladder.

Japan’s recent economic reforms have been part of this same pattern: once again, change was triggered by the prospect of international competition and concomitant worry about national survival. But in this case the competition came not from the faraway West, but from one of Japan’s closest neighbors and oldest rivals.

At the peak of Japan's real estate bubble, the wooded imperial estate at the center of Tokyo was worth more than the entire state of California.

In the 1990s, China suddenly emerged as a top contender not only for economic power but also for diplomatic and strategic influence. Perhaps the worst blow came in 1998, when President Clinton visited China for nine days—flying right over Japan both coming and going. During his visit he described Communist Party leader and President Jiang Zemin as “a man of extraordinary intellect,” praised “the intelligence, the ingenuity, the enterprise of the Chinese people,” and predicted for the Middle Kingdom a future with “even greater promise” than its “glorious past.”

Watching Japan’s chief ally join the growing line of suitors in Beijing was a shock—a wake-up call—for Tokyo leaders languishing in self-pitying lethargy. For the first time since the Japanese defeat of the Mongols eight centuries ago, Japanese realists had to admit that the country faced genuine competition within Asia. Here were Western governments and investors lavishing capital and praise on an opaque one-party state whose strategic industries remained in government hands.

Japan, in comparison, had lapsed into stagnation, failing to attract foreign investors and maintaining myriad obstacles to businesses that wanted in. Local producers claimed that Japanese snow was unique, so Tokyo responded by banning foreign-made skis; to protect the supposedly sensitive intestines of Japanese diners, Tokyo similarly restricted imported beef. In fact, Japan continues to lag behind China in attracting outside investment, largely because it simply doesn’t need the capital, but also because China has chosen to make attracting foreign investment a key growth strategy. More than 60 percent of China’s manufactured exports are produced by firms with significant overseas involvement or ownership.

The remaining issue was to privatize the Postal Savings Bank, which, with $3.1 trillion in assets, funded some 45 percent of all outstanding credit in Japan. It was called the 'world's largest experiment with financial socialism since Stalin.'

For years, the Japanese government’s preferred economic policy was simply to keep spending. Public sector debt began to be described as unsustainable, peaking at 150 percent of GDP soon after Koizumi’s election. (By contrast, Chinese debt is 85 percent of GDP, and American debt, owed to the public, is a little under 40 percent of GDP.) This stubborn refusal to consider genuine reform made the prospect of Chinese supremacy ever more likely. Books like The Day When China Overtakes Japan drummed up fear throughout the archipelago, contributing to Koizumi’s election and public support of his agenda for change.

China, despite its impressive growth in the past two decades, still has a long way to go. In 2006, China’s GDP was $2.5 trillion, just over half of Japan’s $4.9 trillion. More important, since Japan’s population of 127 million is roughly one-tenth that of China’s, the income of the average Japanese, at $35,000, was 18 times that of the average Chinese.

China holds much-vaunted international reserves valued at $1.2 trillion, but Japan’s reserves are $890 billion, far from insignificant. 

With China’s GDP soaring to 11.1 percent in the first quarter of 2007, there is little doubt that it will catch up with Japan in time—25 years is a good guess. As a developed society with a deeply capitalized infrastructure, Japan has no need to grow even at 3 percent to retain a high standard of living—which is, after all, the goal of any society. It’s not pure GDP that counts but GDP and wealth per capita. Here, Japan, because it started so far ahead, will surpass China for two generations or more.

Beneath their rivalry, Japan and China actually have much in common. Japan stagnated for so long largely because its dominant party, the LDP, had entangled itself, over decades in power, in vast webs of reciprocal obligations that undermined any attempt at reform. This system had many parallels with the unspoken contract between the post-

Mao Chinese Communist Party and the Chinese population: that the Party could continue to rule unaccountably, as long as it continued to lift the standard of living.

The primary difference between China and Japan, of course, is that in Japan the population held, at least theoretically, the power to insist on political change through elections. The Japanese hadn’t really used this power in decades, but when Koizumi’s reform program was frustrated by the conservatism and vested interests of the LDP, he turned to the electorate to back him against his own party, and won overwhelming support from Japan’s well-educated and well-off population.

Japan’s political and business leaders often seem obsessed with China’s relentless rise. In return, China’s own ascendant nationalism, which has largely replaced the Communist spirit, is a rejoinder to Japanese pride. Chinese-Japanese relations sank to new lows when the Japanese soccer team defeated China in the 2004 Asia Cup final, sparking riots in Beijing (which included the wrecking of the Japanese ambassador’s car), and, more recently, when Chinese students led violent anti-Japan demonstrations in 2005.

But leaders of both countries recognize that they need each other too much to let nationalist sentiment get out of hand. China’s assembly factories provide crucial profits for Japan’s major corporations, and Chinese goods are among the products enticing Japanese consumers to start buying again. In turn, the manufacture of sophisticated Japanese components is helping drag Chinese industry up the value chain, and Japanese investment and markets are highly prized. Each country is the other’s biggest source of imports. As of spring 2007, China has become Japan’s biggest trading partner, knocking the United States out of a position it had held since the end of World War II.

It’s not surprising then that the most successful initiative of Shinzo Abe’s regime—both in terms of the actual outcome and the Japanese public response—has been his effort to mend ties with China. Koizumi was effectively blacklisted diplomatically by Beijing; Abe made the Chinese capital his first destination as prime minister last October and was received with considerable relief and respect, if not outright enthusiasm. China’s prime minister, Wen Jiabao, made a reciprocal visit to Japan in April of this year, announcing that if Abe had broken the ice, then he was melting it.

If serious conflict does develop between the neighbors, the cause will probably be competition for energy, particularly oil. China Daily has written: “Japan would rather cooperate with Europe and the U.S., which both have huge oil stocks, rather than partner with China over energy. That automatically pits Japan against China.”

By spurring needed economic and political reforms, the Japanese rivalry with China has been a positive force, but Japanese nationalism more generally has a troubling history—one that could ultimately threaten the nation’s progress.

Koizumi caused international controversy with his annual visits to the Yasukuni Shrine, which honors 14 Class A war criminals, among thousands of other war dead. He was the first prime minister in 20 years to visit the shrine, enraging China and South Korea, where polls show that 60 percent of the population “dislikes” Japan.

The new prime minister, Shinzo Abe, shares both his predecessor's ambitious agenda and his establishment pedigree: Abe's father was foreign minister, his grandfather prime minister.

The unwillingness of Japanese leaders to consign World War II to history continues to explain why Japan has yet to box its weight diplomatically, despite its economic might. During Koizumi’s tenure, China successfully led the campaign to deny Japan a permanent place on the United Nations Security Council, even as Tokyo was lobbying against a French proposal to lift the European Union’s arms embargo against Beijing.

Abe has so far stayed away from Yasukuni. But Japan’s problems with the past go deeper than symbolic pilgrimages. The prevailing Japanese understanding of 20th-century history, which downplays or even denies the nation’s atrocities and, in fact, portrays Japan as a victim, continues to frustrate not only the country’s allies but also internationalists within Japan. Meanwhile, Japan has stubbornly clung to old ways in other realms as well. There are few issues, for example, that so infuriate and unite environmentalists around the world as killing whales. Yet Japan continues to allocate considerable resources to doing so, ostensibly in the name of research.

In reaction to criticism, a rising contingent of young nationalists complains that Japan is constantly asked to apologize to countries like China, whose ruling party, when led by Mao Zedong, was responsible for the deaths of millions.

Directly related to Japan’s view of its military past is its vision of its military future. Abe, backed by his hawkish foreign minister Taro Aso, has pledged to rewrite Japan’s postwar, U.S.-drafted, pacifist constitution to permit a more robust program of defense. Most radically, he proposes removing Article 9, which renounces the use of force in settling international disputes.

This pacifist code enabled Japan to keep increasing its spending on infrastructure, education, and health throughout the Cold War, while its allies were throwing resources at defending against communists. Now times have changed. In January, the Japanese Defense Agency was upgraded to a full ministry, and the government is preparing to establish a U.S.-style National Security Council.

Local producers claimed that Japanese snow was unique, so Tokyo responded by banning foreign-made skis; to protect the supposedly sensitive intestines of Japanese diners. Tokyo similarly restricted imported beef.

There are legitimate security concerns. In 1998, North Korea fired a missile over Japan into the Pacific Ocean and, last October, tested a nuclear bomb. Pyongyang refuses to discuss with Tokyo the fate of 13 Japanese, including children, that the regime has admitted to abducting in the 1970s and ’80s. Taiwan, whose experience of Japanese colonization over a half-century up to 1945 was less negative than that of the rest of the region, remains close with Japan economically and socially. But China has more than 400 missiles ranged against the island, which is only about 120 miles from Okinawa.

Japan also has a stake in the U.S. war on terror, to which Koizumi made a commitment in the aftermath of September 11. In its first foray into an active foreign war zone since World War II, Japan deployed noncombat troops to Iraq. But Tokyo’s relationship with the Pentagon has since frayed a bit, even as Japan’s military “normalization” has proceeded with U.S. support. Japan thinks the United States has moved too close to China, and accommodated North Korea too readily in February’s Six Party talks. “A positive U.S.-Chinese relationship is in Japan’s national interest, but excessive U.S. accommodation of Chinese power at Japan’s expense will lead to increased hedging by Tokyo and a less predictable Asian security environment,” wrote Georgetown international relations scholar Michael Green in a recent issue of Foreign Affairs.

Just over 60 years after the U.S. bombing of Hiroshima and Nagasaki, memories are still too raw for Japan to convert its atomic expertise into a nuclear arsenal, but the Abe government is reaching out to other liberal democracies in the region and forging fresh alliances. Australian Prime Minister John Howard flew to Tokyo in March and signed a security pact. Abe and Howard stressed that this new pact was not targeted at China. But as Michael Green has observed, “As Asian leaders debate the formation of new multilateral institutions such as the new East Asian Community”—which includes Australia and India, another potential democratic partner for Japan, but not the United States—“Japan is engaged in an intense contest with China to determine what the new institutions are to be based on: preserving Asian exceptionalism, as Beijing now argues, or pursuing a common set of values rooted in democracy and the rule of law, as Tokyo contends.”

Abe wants to make Japan an international leader in the realm of values—an objective expressed domestically last December when parliament passed the Fundamental Law of Education, stressing public spirit, tradition, and patriotism. This radically conservative thrust—which would be anathema in Europe and the United States—has wide support within Japan.

“The economic bubble and its collapse [appear] to have harmed not only the economy but also politics, society, [and] the Japanese value system,” says Keizo Nabeshima, former chief editorial writer for the Kyodo News. “If the LDP is going to survive as a conservative party in an age when election results are increasingly determined by unaffiliated voters, it must turn itself into a reform-oriented party that energizes society, instead of clinging to old-guard vested interests.” To enable his party to better tap into this zeitgeist and appeal directly to voters, going around the LDP hierarchy with which he still has difficulties, Abe is planning to push legislation to allow referendums (limited at first to constitutional amendments) for the first time in Japanese history.

Perhaps the biggest obstacle to Japan’s continued rise, however, is neither collective amnesia nor security concerns, but simple demographics. The Japanese population fell last year for the first time since World War II and—excluding the war years—for the first time since the country began collecting data in 1899. The government says Japan, like other nations, needs a birth rate of 2.1 per woman to maintain the current population; in 2005, however, the rate fell to a record low of 1.25. Japan is not alone in confronting demographic decline: China, which also effectively excludes immigration, except by ethnic Chinese, is facing a more dramatic challenge after Mao’s call to “populate or perish” was replaced in 1979 by a one-child-per-couple policy.

As the Japanese workforce declines, it will become more difficult to reduce the government-debt burden accumulated during the 15 lost years. It will become ever harder to look after the elderly population. What can be done? Japan’s new strategic partner Australia has responded to similar pressures by opening the doors to skilled immigration and offering cash payments to new mothers. The Australian fertility rate is now rising (it is 1.83), and immigrants have more than filled the rest of the replacement gap.

Japan is recruiting armies of guest workers from elsewhere in Asia, not least to look after its senior citizens, and has already opened its domestic markets to investment and foreign management. But its leadership still lacks the courage to call for the logical next step: a full-fledged immigration program. Cultural resistance remains firm; even neighbors like Korea, with cultural affinity to the Japanese, are widely excluded from social acceptance.

In the meantime, Japanese leaders argue that the fertility rate will rise as the economy grows and, with it, confidence in the future. Economic growth, it is argued, will also foster the entry or reentry of vast numbers of women and seniors into the workforce.

Perhaps the biggest obstacle to Japan's continued rise, however, is neither collective amnesia nor security concerns, but simple demographics. The Japanese population fell last year for the first time since World War II.

There is no doubt that Japan is on the rise, but the particular contours of this latest ascendancy remain undefined. Will Japan come to terms with its imperialist past and find a way out of its demographic dilemma? To what extent will Japan allow its cultural and political rivalry with China to trump common economic interests? How will Japanese relations with the West change? So far, it seems clear that Japan wants to remain a close ally of the United States, but not at any price. In the aftermath of World War II, Japan had no choice but to follow the U.S. lead, but that era is now over.

And how will the United States respond to Japan? So far, in stark contrast to the outcries of the 1980s, the American public does not even seem to have registered that Japan is on the rise, and until very recently American investors did not seem to be paying attention either. But that picture has shown some signs of change. Fidelity’s Japan Fund now has $1.9 billion in assets, and in late April, Merrill Lynch announced it would buy a $2.9 billion stake in Japan’s fourth-largest bank, Osaka-based Resona Holdings. Citigroup has been seeking to buy Japan’s third-biggest brokerage firm.

A few years ago, Richard Jerram, the astute chief Japan economist at Macquarie Securities, wrote, “The typical U.S. institutional investor seems to view the Japanese recovery rather like most Americans view the soccer World Cup. They are aware that it is taking place, but have difficulty in getting very excited about it.” That’s changing. Americans as a whole, not just big investors, are beginning to realize that Japan is back—and that Japan is different.

Rowan Callick is the China correspondent of The Australian, the national daily newspaper, and previously was Asia-Pacific editor of The Australian Financial Review. He wrote about China’s coal in the May/June issue of The American.

Image credits: Photos by Flickr users dave_italy, oimax, gregor_y, and m-louis respectively.