After many years of false starts, the Japanese economy may finally be set to boom-or at least to enter a period of sustained growth with a sharply rising stock market. Many will have their doubts, especially in view of the recent weak performance of the Japanese economy I will outline. But for the first time in decades, the Bank of Japan (BOJ) is finally undertaking some innovative measures that may lead to real gross domestic product (GDP) growth in Japan. Based on these promising signs, the hope is that a surge in Japanese growth would be a big boost to Japanese stocks and to the global economy.

The Japanese economy is not in good shape. In its most recent report on gross national product (GNP), the Japanese government announced a nasty 2.3 percent annual rate of contraction in the economy during the fourth quarter of 2011. Nominal GDP growth was even weaker, contracting at a 3 percent annual rate, thanks to a falling price level at about a 1 percent deflation rate. To put the same sad story even more clearly, the current yen value of Japan's GNP stood at about ¥470 trillion at the end of 2011, about the same as in 2009 and well below the ¥515 trillion in 2007. With Japan's economy entering what could be its third "lost decade" of weak or negative growth and falling prices, a decisive policy response is required.

David Fuller's view The short answer to my headline question above is both. Japan has entered the second year of its potentially third consecutive 'lost decade' and it will take decisive action by the BoJ to break out of it.

Fortunately, the central bank has finally bowed to considerable pressure from the legislative government and corporate Japan, and is pursuing policies mentioned by John Makin in his report above. His views coincide with those expressed by Fullermoney over the last few months.

The key, in Fullermoney's view is a significantly weaker yen against the US dollar (JPY/USD) and the Chinese renminbi (JPY/CNY). We have begun to see this since February but it will need to carry considerably further over the medium term to really boost Japan's export earnings.

Another crucial factor would be a sustained decline in Japanese 10-year Government Bond futures, signalling the release of some savings in fixed interest, potentially for equity investment.

Further signs of success would be a continued recovery and preferably relative strength for Japan's Topix Banks Index and also its Second Section Index. Historically, they have led the big-cap, diversified Nikkei and Topix during Japan's better stock market recoveries.

All of these markets have been moving in the right direction in recent weeks, although the new trends need to be sustained before we can conclude that this time Japan really is on the road to recovery. Nevertheless, given the potential, I favour an overweight position in Japan's stock market.