Just when Japan’s economic recovery needed a steady hand on the rudder, the Government, central bank and all-powerful bureaucracy have conspired to steer the country onto the rocks.

An economic powerhouse that once seemed like the epitome of benign central planning has dissolved into fragmented chaos. Entire sectors of the economy have been destroyed or badly beaten by a single stroke of a pen as regulators, MPs and civil servants restrict their vision to their own small fiefdoms.

Thus a single, hastily-drafted, shoddily administered piece of regulation has done more damage to Japan’s housing sector than the entire sub-prime debacle did to its US counterpart.

The sudden and unprecedented collapse of the construction sector is now the third time that a law has been passed with absolutely no thought given to its macro-economic effect. Japan’s vibrant, $1 billion-a-year market for second-hand goods was destroyed by a law that forced sellers to submit any electrical goods to an official test which cost more than the value of the items themselves.

Earlier this year, the consumer finance sector – a once booming industry whose earnings represented 10 per cent of the profits in the Nikkei 225 Index – was obliterated by a new law capping interest rates at a level too low for lenders to sustain a decent business.

The new law on quake-proofing, though purportedly ensuring the safety of the public, has in reality been so badly administered and explained that even the most robust old veterans of the construction industry are too scared to build anything.

Amazingly, all three laws were totally unnecessary and passed in knee-jerk reaction to isolated scandals. In each case, the law itself has been blamed where the guilt actually lies with its shoddy enforcement.

The consumer finance sector was given its astonishingly harsh punishment because, at a few branches of one lender, debt collectors were heavy-handed with customers. Japan has had the world’s strictest quake-proofing laws for years, but a single architect’s faked data was presented as a national crisis in buildings.

Looming over all of this is what some see as the biggest policy error of all – the Bank of Japan’s decision to abandon its zero interest rate policy before there was convincing evidence that the country had actually escaped the misery of deflation.

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