Japan experienced its worst recession to date in fiscal 2009, marked by two consecutive quarters of double-digit negative growth. However, the economy has apparently bottomed out as the export downturn has abated and inventory adjustment is underway. We predict the record economic stimulus package announced in April 2009 will boost the economy above its potential growth rate in the first half of 2009. However, due to persistent weakness in personal consumption and business fixed investment, the economy could falter when the fiscal stimulus effect wanes in fiscal 2010. We predict real GDP will contract -3.2% in fiscal 2009 but subsequent expand 1.1% in fiscal 2010.