AFTER a half decade of flying high, Japan's economy came back to earth last year when two of its "bubbles," rising land prices and the speculation-driven stock market, finally burst, or at least crumpled.
Now the debate in Tokyo is over whether the landing of the world's most vigorous economy has been too soft or too hard, and how fast to pump it up again.
President Bush, on his trip to Tokyo earlier this month, joined the debate by getting Japan to commit to 3.5 percent in real economic growth this year in hopes that it could help pull the West out of stagnation.
But the comedown from the boom years of the late 1980s has produced gloom among Japanese business leaders as they watch the Tokyo Stock Exchange dribble along at nearly half its peak value while property prices in big cities continue to fall.
Both trends have reduced the advantage of cheap capital that the Japanese firms enjoyed over their foreign competition, especially in raising funds to buy into Hollywood, prime American real estate, and innovative high-tech firms in the West. On TV talk shows and in corporate backrooms, Japanese now talk of "fu keiki," or hard times.
During the "bubble" economy after 1985, Japan outinvested the United States by 2.5 to 1 on a per capita basis. Its economy grew larger by the equivalent of France's gross national product, says Kenneth Courtis, senior economist at Deutsche Bank Capital Markets in Tokyo. Japanese firms are now importing capital.
With the days of heady market speculation and easy credit gone for now, many analysts in Japan offer conservative estimates for the nation's real economic growth rate, most of them in the range of 2.5 percent, the same rate as in 1986, when the "bubble" economy was launched by the government using low interest rates and a rising yen.
Despite those predictions of respectable growth, many anticipate that the worst is yet to come. Small firms, for instance, are especially bearish.
Takeshi Noda, minister of the Economic Planning Agency, said "We want the public to understand that the economy is not at rock bottom." Rather, the government sees Japan as being in a "growth recession," with unemployment staying low, consumer spending still strong, and Japan's trade surplus likely to reach a record $100 billion this year.
"If people gain confidence, Japan will be able to achieve a government target of 3.5 percent growth," said Mr. Noda.
One low-growth estimate comes from analyst Robert Feldman of Salomon Brothers Asia Ltd. He forecasts 1.8 percent growth, and possibly a decline in capital investment.
"That 1.8 percent growth is a transition rate to a more sustainable growth rate," he says. "Japan was growing at over 5 percent a year, and that skirts with inflationary problems."
HE monetary-policy-setting Bank of Japan (BOJ) foresees years of recovery from the underlying distortions caused by the bubble economy's overly rapid growth.
"What matters most now is to engineer a smooth shift to a balanced growth, not whether the growth figure is high or low," said the bank's governor, Yasushi Mieno on Tuesday.
Mr. Mieno is under pressure to lower the BOJ's discount rate, even after dropping it to 4.5 percent in late December. That's because monetary stimulation of the economy is considered the only choice after the ministry of finance rejected a highly stimulative budget for the fiscal year beginning in April. The proposed budget, which hikes spending by only 2.7 percent, reflects worries by finance ministry officials about Japan's high long-term debt estimated to be 45 percent of GNP.
Mr. Feldman says the government sees nothing wrong with the Japanese economy going through "a cooling off period."
Indeed, Prime Minister Kiichi Miyazawa sees the need for deeper transformation of the economy, such as deconcentration of Tokyo, and has asked for a five-year plan (1993-1997) ahead of schedule. He ordered the new plan Tuesday from his economic advisory council and reportedly told the panel to switch policy from a bias toward producers to one favoring consumers.
"Japan's per capita income has reached the world's highest levels, but this has not yet fully contributed to enriching life for each Japanese," Miyazawa said.