Amid the global economic turmoil triggered by the U.S. subprime mortgage crisis, we predict Japan’s economy will average only 1.0% real growth annually over the next five years, well below its potential growth rate. In the U.S., balance sheet adjustment in the household sector will constrain consumption even after the financial crisis ends, slowing the growth of emerging economies. In the second five-year period, despite a global recovery, Japan’s economy will temporarily stall due to consumption tax rate hikes, reducing the annual real growth rate to 1.5%, again below the potential growth rate.