Shrinking Japanese economy can't be blamed on U.S. (Commentary).

THERE'S plenty of chatter these days about troubles in the U.S. economy, Europe's stock slide and Latin America's financial woes. China's rise often comes up, and so does Indonesia's ongoing implosion.

Asia's attempt to stay out of recession also gets attention. What doesn't come up much is Japan, the world's second-biggest economy.

Asians have known for some time that Japan, their traditional engine of growth, is less of a factor in the region and its role is getting smaller by the day. But the rest of the world is increasingly wondering how much Japan matters. "They're just not the country they used to be," says Peter McTeague a global bond strategist with Greenwich Capital.

Yes, Japan still matters. It's home to Asia's biggest markets and boasts its only truly international currency. It's also by far the region's biggest economy--China is rising but it's hardly big enough for the Group of Seven nations to consider booting out one of its members.

Japan has some excellent, internationally competitive companies like Sony Corp. and Toyota Corp. The nation also provides crucial financing and loans to Asia and parts of the developing world.

Yet Japan's status has been shrinking steadily, a side effect of the country's 12-year slump and the paralysis in Tokyo over how to fix things. The trend is likely to continue in the years ahead.

For Washington, Japan's slide out of the spotlight is riddled with risks, both geopolitical and financial. But then, the U.S. government unintentionally has done as much as any to turn investors away from Japan. The process began in the final years of the Clinton Administration. In late 1999, then-U.S. Treasury Secretary Lawrence Summers decided essentially to write off Japan. For years, Summers and his predecessor Robert Rubin came up with new sound bytes and not-so-veiled admonishments of Tokyo's policy makers but achieved nothing. And so, Summers decided the U.S. would leave alone its most important ally, more out of frustration than strategy.

President Bush's economic team arrived in January 2001 claiming to have a new hands-off policy toward Tokyo. The Bush White House wouldn't lecture Japan. In reality, it merely formalized what Clinton's team already concluded--that Japan was destined to grow 1 percent a year at best for the foreseeable future.

As Japan suffered through its "Lost Decade' the U.S. thrived as rarely before. Asset values surged, the nation practically ran Out of workers and once-in-a-generation advances in technology captivated the world and took many of its economies along for the ride. The period proved that the global economy could grow quite vigorously without Japan.

Blaming the U.S.

Japanese officials have turned to blaming their troubles on the U.S. When the Nikkei 225 Stock Average falls, Tokyo points fingers at sliding U.S. assets. When the yen rises and hurts Japan's competitiveness, it's the fault of the wobbly U.S. dollar. Funny how the U.S. wasn't an issue for Japan when it was healthy.

In fact, the 1990s might have been much harder on Japan if not for the American boom. True, the U.S. sucked up more than its fair share of global capital during the period, depriving others of investment. But American consumers also bought loads of goods from Japan and the rest of Asia. What if the U.S. hadn't been thereto buy Japan's goods?

That's not to say Japan isn't a major concern for global policy makers. Industrialized nations still spend considerable energy mulling what a Japanese banking crisis would mean for the entire world. But most attention paid to Tokyo these days concerns how to avoid its policy mistakes over the last decade.

In the U.S. and Germany, officials wonder how vulnerable their economies are to a Japan-like malaise. They wonder if their central banks can avoid the missteps of the Bank of Japan, which raised rates too much 12 years ago and lowered them too slowly afterward.

Nothing will restore Japan's global status like a strong recovery. Each year that goes by without one will see Japan's influence wane--not only in Asia, but here in the heart of global finance.

William Pesek is a columnist with Bloomberg News