Is Japan back in the game?(Forward Observer: Politics meets economics)

When I was in Japan recently, everyone was talking about what was called the "fat finger" mistake.

On the morning of December 8, a low-level employee of Mizuho Securities placed an order to sell 610,000 shares of J-Com at a penny a share. The employee apparently pushed a wrong key somewhere, because J-Com, a tiny company that recruits part-time workers for cellphone retailers, has only 14,500 shares outstanding. The employee meant to sell just one share at 610,000 yen.

Mizuho identified the error within two minutes and tried to stop the order. In vain. The Tokyo Stock Exchange's system refused to allow a cancellation. As a result, sharp traders at institutions like Morgan Stanley and Nomura Securities immediately bought shares at what amounted to an absurdly low price.

When the dust cleared, Mizuho had lost $335 million, or roughly four times the entire market value of little J-Com. The papers were full of stories about day traders who made millions by accepting Mizuho's generous offer.

The symbolic question is whether the fat-finger fumble--and a brewing scandal involving a hot Internet company called Livedoor, run by a 33-year-old Tokyo entrepreneur who doesn't wear a tie--are portents of where Japan is heading. In 2005, its stock market enjoyed an explosive year--up about 40 percent after the stunning election victory of Prime Minister Junichiro Koizumi, who campaigned on a market-oriented, reformist platform. GDP growth is about 2.5 percent, good for an economy that barely grew for a decade. Japan's banking system has written off burdensome bad debts; land prices in Tokyo rose last year for the first time since '91; and deflation appears to be ending.

But will the Japanese foul up this recovery--as they have every other recovery since their miracle economy fell to Earth 15 years ago? I think not.

The Japanese are ready to admit they have made some big mistakes in the past. Less than two weeks after the fat-finger trade, the president of the Tokyo exchange and two other executives, including the manager of computer systems, resigned to accept responsibility for the error. Koizumi's big election win also grew out of a new accountability: his Liberal Democratic Party admitted it had erred ...