The Japanese Cabinet Office revealed today that the Japanese economy suffered a crippling fall of 15.2% (annual) in output in the March quarter.

It was made more stunning by the revision of the fall in the December quarter to a nasty 14.4% (annual rate), from around 12.2% originally reported.

Quarter on Quarter the Japanese economy fell 4% in March from December. In contrast the US economy was down around 1.5% (6.1% annual in the first reading for the quarter).

Because the preliminary figure came in under the 16.1% annual slump forecast in various surveys, economists said that was a sign that the slump was bottoming. It might be, with industrial production seemingly edging higher.

An unprecedented collapse in exports, business investments and the liquidation of stocks of unwanted goods (especially cars and consumer and business IT products and entertainment equipment) were also seen as setting the scene for a recovery later this year. But what happens if no one wants to buy Japanese goods in the US, Europe and Asia in the quantities that would underwrite a rebound, or orders are only sufficient to steady the slump, not reverse it?

That’s a question more and more economists are asking in the US and Europe as they wonder if consumers and business have the financial strength and appetite to boost buying goods and services in sufficient volumes to trigger a rebound.

If banks are still hesitant about lending, if business is still hesitant about investing and ordering from other businesses, and the American housing sector remains a bottomless black hole, then the chances of a well founded recovery look slim, especially with so much unwanted capacity in cars, IT and CE products, chemical, steel, copper processing, aluminium and the like.

The rebound in world equity markets has spurred investor sentiment the past month and lifted sentiment in many economies, but so far nothing has emerged to justify much of the optimism about the health of longevity of the green shoots. Judging on his speech in Sydney yesterday and on the minutes of the May board meeting, Reserve Bank Governor Glenn Stevens, would be among the few public optimists currently willing to stick their heads up.

But Japanese Prime Minister Taro Aso’s Government is at least spending a record 15.4 trillion Yen ($US160 billion) stimulus package which has seen a small steadying in production, the plunge in exports seems to have stopped, consumer confidence has risen, even though retail sales are falling and price deflation is taking hold.

The Japanese stockmarket has recovered 32% from the 26 year low set in early March (as have most other major markets around the world). There is at least confidence that the worst is over, and a belief the slump has steadied. But Japan, like China, needs solid growth in offshore demand for its products to lift itself out of the mire. China, at least has the financial strength and the huge underdeveloped domestic market to throw money at, Japan has an aging, mature domestic economy where consumption is not and will never be a big driver.

It is an export machine, so that’s why the likes of giants such as Toyota, Sony, Panasonic and others foresee another year of losses: not as deep or wrenching as over the last six months of the March, 2009 financial year, but red ink nevertheless.

That will limit the scope of any rebound in Japan. That’s also going to be a factor that limits the recovery in the other global basket case, Germany, which has linked itself even closer to exports than either Japan or China has.

Global demand is not likely to revert to the boom years of 2007, 2008, so Japan (with China, Germany, South Korea and even the US) will find it tough to overcome the overhang of capacity and over-employment.

This remains to major areas of concern that the current search for “green shoots” is not addressing. Everyone is busy trying to call the bottom and clamber on the rebound and ignoring that the rebound won’t have much gas in the tank at all and could very well stall as a result.