Recovery too weak to end deflation

Japan’s economy is on a roller-coaster ride. This year’s growth overall is likely to be the fastest of any G7 country, but GDP will almost certainly shrink in the fourth quarter. Such volatility, while not so unusual for Japan, will keep confidence fragile and investment spending sluggish. What’s more, even without a double-dip recession, growth will not be strong enough in 2011 and 2012 to bring a meaningful end to deflation, and the yen will probably drop back further.