The Japanese data revisions are in, and they are even worse than anyone--or at least than I--had feared, even fearing that they were worse than we hard feared. The second quarter of 2001 saw real GDP shrink at an 8 percent annual rate. The first quarter of 2002--which had supposedly seen GDP grow at 6 percent per year--was completely flat.

All this leaves Japanese real GDP today some 2.5 percent below its level in the fourth quarter of 20002.

Economist.com: Earlier this year, optimists could at least take solace from signs that the economy was rebounding in the first quarter, from a dismally deflationary 2001. It now turns out, however, that all of that growth was illusory. After revising the way it tots up the figures, the government announced at the end of August that GDP growth had been zero in the first quarter, not the 5.7% annual rate that was announced earlier. The second quarter was better, but not especially reassuring, with GDP rising at an annual rate of 1.9%. Industrial production rose sharply in April and May, but it tailed off again in June and July. Domestic demand refuses to show a convincing bounce, leaving the economy desperately dependent on those exports and overseas earnings...

ONCE again, Japan is paying the price for waiting. A combination of weak demand at home and bad economic news from America raised fresh doubts this week about whether its recent pick-up in output is here to stay. After putting off reforms, fiddling with the stockmarket and holding their breath at the end of the financial year in March, Japan's policymakers find themselves not far from where they were six months ago. Only now they are a little deeper in debt, have more countries rated above them in the international-bond tables, and have fewer ways to disguise their bad decisions.

Following signs of stagnant demand from America, investors sold off shares in exporters such as Sony, Toyota and Honda. Since a handful of such firms have supplied most of Japan's good news this year, shares in other domestic firms suffered as well, helping this week to drive the main Nikkei share index briefly below 9,000, where it last was in 1983. Because banks must report interim results at the end of this month, and must add losses on all those shares to their already weak balance sheets, confidence in the financial system is more than usually shaky.

This familiar cycle does not appear, despite a lower stockmarket, to be jangling nerves the way it did six months ago, when a weak yen and the looming repeal of insurance on some bank deposits raised the stakes. But in other respects, the situation has grown less encouraging. Earlier this year, optimists could at least take solace from signs that the economy was rebounding in the first quarter, from a dismally deflationary 2001. It now turns out, however, that all of that growth was illusory. After revising the way it tots up the figures, the government announced at the end of August that GDP growth had been zero in the first quarter, not the 5.7% annual rate that was announced earlier.

The second quarter was better, but not especially reassuring, with GDP rising at an annual rate of 1.9%. Industrial production rose sharply in April and May, but it tailed off again in June and July. Domestic demand refuses to show a convincing bounce, leaving the economy desperately dependent on those exports and overseas earnings. Even as Honda and Toyota have racked up profits in America, for example, domestic car sales have fallen year on year for the 12th straight month.

Things may yet turn around a bit. Surveys of small firms have shown rising confidence recently. Richard Jerram, chief economist at ING Barings in Tokyo, points to recent consumer surveys, which have been a good leading indicator and which suggest that deflationary pressures may soon ease up a little as well. And there is always luck: demand from overseas may perk up again. None of this will mean much, however, if domestic demand does not strengthen, with at least a mild uptick in capital investment. Otherwise, another white-knuckle March, when the financial year comes round again, may not be too far off.