Let me try another tack here. My understanding has been that Japan has been historically locked into a pattern of development characterized by high savings rates and high investment shares of GDP (the "exhilirationist" model). Each validates the other, and both are made feasible by a large trade surplus: this prevents the high rate of savings from becoming a Keynesian burden and it generates the induced demand for investment.
According to this view, Japan is in the midst of a protracted adjustment crisis, which can either be explained by increased competition with other east Asian exporters for the available (i.e. US) markets, or by the "maturation" thesis, according to which domestic consumption can no longer be constrained and the economy loses its export advantage. In either case, much of the capital stock is revealed as "misinvested" -- and this on top of the bad bets made during the bubble period. The Japanese system of pooling financial risk supposedly slows down the adjustment process; hence the outside calls for restructuring via write-offs and default. If this is true, the problem shows up in Keynesian fashion (reduced net exports), deflationary pressure (competition with lower-wage producers in the region), and persistent financial fragility. Comments? Peter
