As the old joke goes, I thought what I saw was the light at the end of the tunnel when suddenly I realized it was a train coming at me.

Though the government is stridently denying it, it appears as if the current Japanese economic “recovery” could possibly end up going the way of previous up turns - nowhere at all.

Industrial production fell in February from the previous month, while unemployment rose. The strength of the yen is making it difficult for Japan to export itself out of recession. All the while, the government is trying to urge everyone to take solace in the fact that the economy is merely flat-lining instead of heading downwards.

Other signs of possible trouble on the horizon include a sharp drop in household spending and retail sales, along with rising unemployment. Japan’s benchmark Nikkei 225 Stock Average is tanking as foreign investors are pulling out of Japanese stocks in fear of the country’s economic future.

As always the government is clueless. They are using the media to create the perception the recession that has endured for more than 10 years is over, and so now it is time to — raise taxes, of course!

Just today, the Japanese Diet voted to phase out a 20% income tax cut that was adopted in 1999 for the purpose of stimulating the economy. By eliminating the cut, taxes effectively will be raised by 10% from their current levels in 2006 and then another 10% the following year.

The government claims the money is needed to curb public debt used to pay for things like roads that go nowhere, lining every last inch of the nation’s riverbeds with concrete, massive slush funds maintained by police and other public officials, and exorbitant salaries paid to do-nothing paper pushers and bureaucrat pooh-bahs. Apparently, the notion of cutting costs never has entered the Nagatacho mind.

Of course, this will not be the first time that Japanese politicians, when faced with a budding economic recovery, have acted like ivory hunters setting upon the last living pachyderm on the face of the earth. As Bloomberg columnist William Pesek Jr. writes:

It doesn’t take much to recall episodes where Japan created fresh economic headwinds. In 2001, for example, it tightened fiscal policy, worsening a decline. In 2000, the Bank of Japan raised interest rates amid modest growth. And in the late 1990s, politicians raised taxes, scuttling a pick up in demand.

Oh, and by the way. . .

The 20% income tax increase is a totally separate issue from the government’s other plan to raise the consumption (sales) tax from the current 5% to 15% or even 20%.