Prime Minister Taro Aso recently dissolved the Japanese parliament, and has called for elections to be held on the 30 August. All signs point to the ruling party, the bourgeois Liberal Democratic Party (LDP), losing power for the first time since 1955 - excluding a 10-month period at the beginning of the 1990s. Right-wing observers are now talking about a ”political revolution” in Japan.

Communism is suddenly back in fashion in Japan. The reason is not hard to find. 'Lifetime employment' is a thing of the past for young workers, whoface a casualised and insecure future. They have already worked out that, as recession bites, they will be first in the firing line. They are drawing political conclusions in increasing numbers.

Japan is the second biggest industrial economy in the world. In the 1980s it experienced a huge speculative bubble, just like the housing bubble that has burst in the USA and is on the point of bursting in Britain now. When the bubble burst, the Japanese people, who up till then were regarded as living in a ‘miracle economy,’ experienced a decade of recession - a ‘lost decade’.

The long post-war economic boom in Japan explained the relative political stability of the country. But since the 1980s things have changed. Now we are seeing its economic decline emerge as political instability, with the masses looking for an alternative to the status quo. The latest developments confirm this.

This article, written in 1998, looked at the severe crisis that was affecting Japan, with big falls in investment and thus in productivity, rising unemployment and falls in the real level of wages. The Liberal Democratic Party started losing support; the Democratic Party emerged in an attempt to prepare a bourgeois “alternative” to the fall of the LDP, while on the left the Communist Party was doubling its forces.

The complacent optimism of capitalist consensus is fast disappearing. At the beginning of this year, the general view about the world economy was that US growth would slow gradually to about 3% from 5%, Japan would pick up a little to about 2% and Europe would trundle along at about 2.5%. The US central bank, the Federal Reserve, would cut interest rates to ensure that any slowdown would not mean a loss of investor confidence or consumer demand. Well, January seems like eons ago in global economics. After a non-stop spate of warnings about lower profits from the main US corporations and the release of economic data each day that showed a weakening economy, US stock prices have plummeted. Michale Roberts analyses how all this is affected by the growing problem of deflation in Japan.