AFTER a decade and a half of recession, deflation and national funk, Japan may be bouncing back. If so, it has much to do with couples like Masaaki and Mikiko Isozu.

Masaaki, 31, works as a software engineer for Sony. His wife, Mikiko, 30, looks after their one-year-old son. And, like young Japanese families across Tokyo, they have just reached a momentous decision. After years of renting, they have decided to buy a home in a gleaming new development in Tokyo’s equivalent of Docklands, East London.

The 49-storey Cape Tower, under construction on a reclaimed island on Tokyo Bay, will have soaring views of the Pacific Ocean and Mount Fuji. The centre of Tokyo is just a short train or car ride away. The finished development will have its own department stores, sports centres and health clinics — and at 50 million yen (£242,000) for a two-bedroom flat, it is a bargain by British standards. But the Isozus’ excitement is tempered by a deep caution.

The anxiety can be summed up in a single word, “bubble”, the period of high growth in the late Eighties that burst so disastrously in the early Nineties and pitched Japan into 14 years of economic stagnation. “When it comes to property, we can’t shake off the memory of the bubble,” says Mr Izozu. “Could this be another bubble? We can’t be sure of the recovery yet.”

The evidence suggests that, after several false dawns, Japan’s economy is expanding once again. Yesterday the Government announced that consumer prices were rising for the first time in eight years. Unemployment is sinking. The Bank of Japan predicts 2.4 per cent growth this year, and Tokyo once again feels like a city growing richer by the day. Across the capital, old buildings are being demolished to make way for new shops, offices, hotels and homes. On the city’s most fashionable boulevard, Omotesando, long queues form outside Omotesando Hills, a new shopping centre of luxury boutiques.

Near by is a newly built replica of a European Gothic cath-edral — venue for expensive “Western-style” weddings presided over by “vicars” who are actually English teachers in fancy dress. At Shibaura Island, where the Isozus are investing, Mitsui Real Estate has had to allocate apartments by lottery because demand has been up to ten times greater than supply.

“Property prices have stopped falling, and interest rates are still very low,” says Masaaki Isozu. “It’s obviously a good time to buy.” But, however encouraging the figures, this will be a recovery very different from Japan’s last period of high growth. No one of the Isozus’ generation can forget the disastrous popping of the bubble economy in 1992. Intoxicated by surging asset prices, banks lent money on the back of apparently unquenchable property values.

When the bottom fell out, debtors found themselves unable to meet repayments. Bankruptcies, unemployment, homelessness and suicides soared. The job of writing off bad loans, streamlining companies and dealing with the surge of dismissals and bankruptcies took more than ten years — the so-called “lost decade” in which the economy was further damaged by a spending slump.

“I remember a man who lived near my parents’ home who was a dealer in foreign cars,” Mrs Isozu says. “He killed himself — it was the most shocking thing.”

Little wonder, then, if many people are watching and waiting. Japanese are the world’s most assiduous savers, but after 14 years of recession, a quarter of households have no savings. Such families are likely to use their salary rises and bonuses not to buy new cars and flat-screen televisions, but simply to replenish bank accounts.

BUILDING BLOCKS

Unemployment
4.3% in the fiscal year 2005-06, the lowest in seven years

Inflation
The Consumer Price Index rose 0.1% in the fiscal year 2005-06, the first increase in eight years

Growth
2.4% predicted for 2006 by the Bank of Japan

Number of new homes under construction
Up 4.7% in the fiscal year 2005-06

Times Recommends

• Rio Tinto four held as China prepares case
• Diplomats must keep heads down and trousers up
• When in Rome should one make like Berlusconi?