The underachieving Japanese economy is still importing record volumes of one product. Every day, hundreds of pounds of free advice are airlifted to Tokyo. Much of this counsel is at cross-purposes. For example, whereas one set of eminent authorities urges a weak yen, another prescribes a strong one. All seem to agree, however, that Japan is in a bad way. The Japanese themselves don't deny it. Many refer to the past 10 years of missed opportunity as "the lost decade." The interesting question concerns the next 10 years. Can Japan reclaim its place as a functioning member of the world economy? I believe it can.

Before trying to explain, I should declare an interest. Late in 1998 I helped to establish a partnership devoted to buying Japanese stocks. The kind of businesses in which we invest are thriving. In general, they are profitable, well-managed and debt-free. However, they are valued as if they were failing. It's a sign of the times that we have dozens of such prospects to choose from.

Most of the Americans advising Japan ask that market forces be allowed to work. Let bad companies fail and good ones succeed, they say. Let true prices be set for land and stocks—and, for that matter, for rice, sportswear and cars.

Excellent advice, but nothing the Japanese haven't heard before—and politely ignored. Turn back the clock about 80 years, to the end of World War I. To stamp out inflation, the U.S. Federal Reserve precipitated a short, sharp depression.

Japan, too, had been caught up in the wartime inflation, but it refused to participate in the postwar bust. Rather, it intervened to prop up inflated prices, a policy that elicited many helpful suggestions from overseas. "The government," the Economist wrote disapprovingly in 1920, "proposes to throw some 200 million yen on the market for the relief of the stock exchanges and exchange banks, but this, it is feared, will only tend to keep up abnormal prices as well as promote further speculation." What it did not promote was prosperity. Inflation-adjusted Japanese growth averaged little more than 2% a year for the next 10 years. The 1920s broadly anticipated the 1990s.

As Americans have recently seen for themselves, booms don't last forever. They are cut short by their own excesses. Busts are not identically self-limiting, but they, too, generate sizable imbalances. On this score, Japan and the U.S. are poles apart. Americans don't save, Japanese do. Americans spend, Japanese don't.

In Japan during the lost decade, debts were repaid, postponed or defaulted upon. Weak businesses and corrupt corporate managers tended to fall by the wayside. Consumption was deferred, and reservoirs of patience were run down.

Famously long-suffering though the Japanese people may be, it is just possible that they are reaching the end of their tether. The policies and personnel of the Liberal Democratic Party may have finally lost their charms. If so, it is not inconceivable that Japan is ready for positive change—if not for the kind of free-market reform that the University of Chicago might prescribe, then something more likely to promote prosperity than the dilatory half-measures of the ancients of the ldp.

However, my partners and I did not send our money halfway around the world on the hope of a Japanese electoral upset. Nor have we laid down a bet on an imminent improvement in Japanese banking regulation or on any other sea change in Japanese public policy (though we hope for the best). What we are mainly depending on is the timeless validity of a Wall Street adage: good things happen to cheap stocks.

How cheap is cheap? Many of our companies are valued in the market at less than their net current assets. In other words, they are valued as if they were piles of cash attached to extraneous businesses of no financial consequence. They are small companies in pedestrian industries—dental supplies, branded sportswear, cold storage and transport, specialty printing, aromatics, household chemicals, drugstores, plumbing parts. But none has failed to generate an operating profit during any one of the past five years.

Furthermore, each of them has welcomed us—foreign investors—into its shareholding fold (something few would have done only a few years ago). When the Japanese skies do, at long last, brighten, each company will be in a position to earn sizable profits.

Nothing is without risk, and there is admittedly some chance that the world's No. 2 economy will cease to function, declare bankruptcy or slip into the sea. We don't think that's likely. If the world didn't care so much about Japan, it wouldn't be sending it all that advice.

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