In the 1980s and early 1990s, Japanese business seemed to be an unstoppable juggernaut that was buying up half the West. What changed?

A recession caused by the collapse of unsustainable high land and stock market valuations which first hit in 1989. The story would be familiar to anyone who paid attention during the 2007 subprime Mortgages fiasco in the US and the 2009 Wall Street crash which followed.

Banks and businesses found their investments turning sour and were saddled with bad debts. This was compounded by a resultant lack of available credit. When business can't access funding they find it very difficult to expand beyond their immediate means.

There is nothing particularly unusual about that, economic bubbles are almost as old as stock markets themselves, but the sluggishness of Japan's recovery is notable.

If you look at key indicators for the period 1990-2014 such as GDP growth rate, spending power on an average wage, government debt as a percentage of GDP, the value of the Yen against the US dollar, trade balance (imports versus exports) - it all makes very dismal reading if you follow the traditional view that growth and investment is always desirable. Although some, such as Forbes Financial Journalist Eamonn Fingleton argue that these indicators are not really indicative of the state of the Japanese economy and that quality-of-life measures should be used instead.

Nevertheless 1990s are commonly referred to as 'the lost decade' and the 2000s are also often lumped in with them, known together as 'the two lost decades' although the Japanese economy did see periods of very modest growth during these years there has not been a sustained recovery or any long-term fix for the underlying causes, as evidenced by the impact of the 'Great Recession' ((The global economic decline around 2009, (exact dates depending on interpretation)) on the Japanese economy.

The reasons for Japan's economic vulnerability will depend on which economic theorist you consult*, but fingers are pointed at ...

An ageing population, which means those who are of employable age needing to financially support those no longer able to work
A lack of robust financial regulations
Counter-productive macroeconomic government policies
A population which prefers to save rather than spend
A liquidity trap, whereby the government lost the ability to effectively manage interest rates.

http://news.bbc.co.uk/1/hi/business/2193853.stm

http://en.wikipedia.org/wiki/Lost_Decade_(Japan) (see citations of this article for lots more info and context.)

*As for myself I take every economic theory that purports to pinpoint the causes of recessions with a massive pinch of salt, I believe that God made economists in order to make weathermen feel better about their forecasting abilities.