Despite continuing deflation and weakness in the financial sector, the Japanese economy has recovered at a moderate pace since early 2002, led by a sharp increase in exports. The weak yen in early 2002 and the already low level of inventories have supported export growth and increased production, which in turn have led to an improvement in business sentiment. The recovery has been particularly strong in electronics and in other exporting sectors, especially automobiles. Activity in domestic sectors has also started to recover, though at a modest rate...