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Another day and another record broken by the Japanese economy, fuelling those pessimists who are increasingly gloomy about the world economy.

On Tuesday, the Japanese stock index - the Nikkei dropped below the psychologically important 12,000 level for the first time since February 1985. And its not just the stock market which looked bedraggled.

Also today, the ruling Liberal Democratic Party held its convention in the Nippon Budokan in downtown Tokyo. The aim of the gathering was to energise the party ahead of elections for the Japanese upper house in a few months but instead the fate of Prime Minister Mori became the main topic with delegates inside and protesters outside calling for him to go and no-one quite sure whether he was going or not. On the weekend the party released a statement indicating he was going, yesterday Mori himself claimed he was staying and then today again he said there would be early elections for a new party leader but failed to make clear how soon.

Mori’s tenure has become something of a joke here in Japan and his on-off departure has also now descended into complete farce. The drop in the Nikkei may have been largely due to the share prince collapse in the US on Monday but even this simply emphasises the degree to which Japan’s leaders are not in control of what happens in the world’s second largest economy. With complete policy paralysis in Tokyo, the Japanese economy is left to stagnate and the stock market to bend with the prevailing wind around the world. But what happens in Japan still matters - if its economy gets even worse, something hard to imagine, it could pull down other struggling Asian economies with it and also Europe where Japan has considerable investment.

This past week has only been one chapter in a saga of economic misfortune that has been running for a decade but the combination of both political and economic bad news has only served to drive home to the rest of the world the mess that Japan is in - and the potential consequences.