Prime Minister Keizo Obuchi, citing a popular proverb, says his administration will not "run after two hares": It will first achieve economic recovery and then tackle fiscal reform. The official scenario is that the economy will pick up soon. The question is what will happen next. Without fiscal props, growth might again come to a grinding halt, making it necessary again to prepare large spending packages. Thus the government might end up missing both hares. That is why consumers keep their purse strings tight and why businesses are reluctant to invest in new equipment.

Wits its fiscal house in a shambles, Japan is racing against time. To prevent the nation from falling into fiscal quicksand, the government must follow a two-pronged policy of running after two hares -- that is, putting the economy back on the course of self-sustaining expansion led by private demand and at the same time mapping out a long-term program of fiscal reconstruction.

The root of the recession lies in a supply-demand gap in the economy: Private demand falls short of supply capacity by about 10 percent of gross domestic product. Consumer spending, to be sure, is sluggish, but expressed as a percentage of GDP it remains fairly stable. The problem is the slump in private investment. The fundamental reason for this is that Japan has neglected to create an investment infrastructure that meets the demands of economic globalization and the information-technology. revolution.