Explores Japan’s economic predicament and prospects for eventual recovery. Describes the origins of Japan’s economic issues and draws contrasts between Japan and America/Europe in terms of human resources, finance and politics. Offers three schools of thought on what will happen to Japan’s economic predicament in the coming years. Provides five factors justifying optimism: increases in foreign investment, deregulation of financial markets, business restructuring, bureaucratic self-awareness and the rise of the Internet. Describes additional reforms necessary for recovery, including tax reform, modernization of land use policy, acceleration of risk-taking, prevention of unwise government spending and deregulation. Offers implications for a Japanese recovery for the U.S.