HONOLULU -- Despite the hype, Japan's antideflation package has failed once again to impress the critics. This failure is remarkable given the international attention that has focused on the proposal, the vote of no-confidence that had been delivered by the markets and the pressure applied by the U.S. government in the lead-up to last month's visit by U.S. President George W. Bush.

For much of the world, Tokyo's inaction is inexplicable given the stakes involved -- the loss of international prestige and the risk of a worsening economic environment . . . not to mention irritating its most important partner. Yet from another perspective, Japanese behavior makes perfect sense: The reluctance to embrace sweeping -- and potentially painful -- change not only reflects the power of vested interests, but it also reveals the extent to which Japan remains wedded to its distinctive economic model and the values it represents. The conventional assumption that Japan will eventually converge with Anglo-American capitalism is misguided. Japan will maintain its distinctive form of capitalism even at the price of considerable economic losses; indeed, it already has. The United States must readjust its thinking to be prepared for yet more "inexplicable" behavior. Unrealistic expectations are the chief threat to alliance management in the years to come.

By just about any standard, the Japanese economy is dysfunctional. Japan has registered the slowest 10-year performance of any large industrial country in the postwar era. Unemployment has reached historic levels, national debt is now 130 percent of GDP (including all liabilities could force the figure as high as 220 percent) and the financial system is burdened with nonperforming loans that threaten its future. Optimists forecast zero-percent growth this year.