The appreciation of the yen by some 15 per cent this year has dealt a blow to hopes of recovery from the most protracted post-war recession. While officialdom has clung until recently to its prediction of 2 per cent-plus growth this year, the emerging reality has been one of renewed recession.
Yet this is only one dimension to the weakness of the economy. Japan is suffering in acute form from a disease infecting much of the world economy. As inflation comes down, so it ceases to do its magic work of destroying debt. UK householders know all about that. In Japan, it isn't just house prices but stock market prices and everything else that have been in free-fall. When prices deflate rather than inflate, the real burden of debt increases.
It is small wonder, then, that Japanese banks have not been able to shrug off their burden of bad debts, recently estimated by the Ministry of Finance to total a staggering 40,00bn yen ( pounds 300bn). With banking capital tied up in the stock market, the danger has been that further falls in the Nikkei would prompt banking collapses and a systemic downward spiral in economic activity.
Depression, deflation and debt: those were the three Ds of the 1930s. The lesson then was that only government could save the day. Yet until now the Japanese government has conspicuously failed to deliver the goods.
The quarter-point cut in overnight cash rates suggests that further monetary relief may be on the cards. A similar easing of these rates preceded the cut in the official discount rate last April. A reduction to 0.5 per cent is called for, bearing in mind the fact that with falling prices the real interest rate is much higher.
But that won't in itself be enough. A further fiscal stimulus is necessary. And perhaps most important of all, a banking bail-out is required. Up until now, popular opposition to such a move has stayed the government's hand. Now there are indications that it may be closer to taking such a step.
It's always darkest before dawn. So it may now be with Japan. But there have been many false starts in attempts to kick-start the economy. The rescue package for the Japanese economy will have to measure up to the fundamental scale of the problem if Friday's rise in the stock market is not to prove a one-day wonder.