The global financial crisis exacerbates the major challenges facing Japan. The crisis erupted when Japan was in the midst of a long but tepid recovery from an even longer period of domestic economic stagnation. Given that the weakness of the U.S. economy has significantly reduced external demand for Japanese manufactured goods, the crisis has wiped out many of those meager gains. China, alone among the major economies, is growing fairly steadily, accelerating the closure of the relative power gap with Japan. The crisis has moreover demonstrated the limits not only of the global financial architecture but also of the regional architecture Japan had been trying to establish. © 2009 The National Bureau of Asian Research