At a recent Washington forum (Center for Strategic and International Studies), two Japanese economists presented a gloomy outlook for the world's second biggest economy. There is little optimism that the decade long slump in Japan will end anytime soon.

Shijuro Ogata is a former official of the Bank of Japan, the country's central bank. He is deeply frustrated that policy makers permitted the process of falling prices deflation to take hold in Japan. Declining asset values worsened the debt problems of Japanese corporations. The problem is now so bad that several big banks are expected to go bankrupt. Mr. Ogata says Japan's chronic economic weakness has created a possible nightmare scenario. "The worst scenario in my view [includes these elements]: a very expensive aging society; a continuing brain drain, the hollowing out of industrial activities; delayed deregulation; a high cost of living; and a limited inflow of foreign direct investment.," he says.

Because of its high cost structure and weak industry, Japan was recently overtaken by China as Asia's largest exporter to the United States. Tsujoshi Jin Saito, of the G7 Group consultancy and a former Tokyo banker, says Heizo Takenaka,in charge of cleaning up the bad debt problem, wants some heavily indebted banks to go under. "His strategy is very clear. Corner 100 or so of the big corporations construction companies and big borrowers to go bust. That's why he is using a cash flow analysis (to determine who should go under), to force them to go bust," says Mr. Saito. "I think if this plan is implemented two or three big banks will go bust by the end of the fiscal year [April 30]."

Mr. Saito says the Takenaka strategy will be judged a success if the Nikkei stock market average now at a 19 year lowmoves significantly higher. He says if several big firms do go bankrupt, the competitive environment for surviving firms will be easier.