Japan has given up its crown with barely a whimper. On the day that China strengthened its claim to be the world's second-biggest economy, Japan released second-quarter figures showing growth of a measly 0.1 per cent. Yet the crown passes to a partner as much as a rival: trade ties the two economies together. China is now Japan's largest export market and its main source of imports. Chinese growth is a boon for Japan's economy.

Japan's problems are of its own making. The economy is meant to be shifting towards consumption after years of export-addiction. But domestic demand made a negative contribution to growth in the second quarter. That has left exporters, struggling with a strong yen, doing all the heavy lifting.

The government has very few options. The fiscal side, if anything, is liable to worsen. Generous incentives aimed at getting consumers to buy white goods are about to run out. The government is committed to cutting spending and is only now walking away from a proposal to double sales tax to 10 per cent. That makes another fiscal stimulus very unlikely. Even in the event of another stimulus, with Japan's finances in such a mess, many may save any handouts on the expectation of higher taxes to come.