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My understanding is that there were a lot of bad loans, that the Japanese government was trying to prevent the collapse of the banking system by bailing the banks out, and the whole mess was stalling the recovery of Japan, Inc.

Some info here.

Hmmm. Well, I think that the referenced Paul Krugman article is just a little out of date: "I welcome the substantial assistance in Japan's legislation to repair its troubled banking system," declared President Clinton this weekend.

In particular, Mr. Krugman in this old article seems quite worried about non-performing loans (NPLs) in Japan; however, that NPL situation has receded and the NPLs are no longer a large problem for the Japanese banking system as a whole.

For what it is worth, there are much more current articles available at the Bank of Japan (http://www.boj.or.jp) and even here on Free Republic.

From a quick search of Free Republic on "Japan":

Japan in lasting economic recovery, BOJ’s Muto says (September 3, 2005)

Japan's International Investment Position at Year-End 2004 (August 29, 2005)

Japan seeing double-barrelled recovery (August 24, 2005)

Japan 's bond sale may cost most since March as economy expands (August 23, 2005)

Japan's GDP increases by 1.1 percent (August 15, 2005)

Why the Sun is Still Rising (and Japan is Poised to Beat us Economically) (August 9, 2005)

Japan's corporate debt falls below 100 trillion yen for first time in decade (July 25, 2005)

Japan's Unemployment Rate Fell to 6-Year Low in April (June 2, 2005)

Japan's Consumers Show Signs of Life (GDP Grew at 5.3% Rate For January-March Period...) (May 18, 2005)

Specifically on the NPL situation, here is a selection of articles and whatnot from the Bank of Japan, though really the NPL situation has been considered fixed for a while:

Financial System Report: An Assessment of Financial System Stability August, 2005 document --- PDF is here:

After more than a decade of struggle, Japan's financial system has almost overcome the nonperforming-loan (NPL) problem, and has entered a new phase of development. The full removal of the blanket guarantee of deposits on April 1, 2005 was a symbolic event of this phase shift.
In view of the changing circumstances, the Bank of Japan published, on March 22, 2005,* "The Bank of Japan's Measures regarding the Financial System after the Full Removal of Blanket Guarantee of Deposits." In this statement, the Bank announced that its basic stance in financial system policy would shift from crisis management to supporting private-sector initiatives toward providing more efficient and advanced financial services via fair competition, while maintaining financial system stability. In this regard, the Bank underwent organizational reforms to adapt to this shift: the establishment of the Financial Systems and Bank Examination Department, by integrating the Financial Systems Department and the Bank Examination and Surveillance Department; and the establishment of the Center for Advanced Financial Technology in the new department.

New Trends in Financial Services: Creation of Innovative Retail Services August 4, 2005, from a speech of the Governor of the Bank of Japan:

Retail financial services have just entered a new stage of development in Japan. This is evident, for example, in the fact that an increasing number of banks are allocating substantial management resources to various areas of retail financial services. Behind this movement is a business strategy among banks to strengthen their profitability, now that the nonperforming-loan (NPL) problem has been nearly overcome. Enhancement of retail financial services, however, is not a trend seen only in Japan, but it has been a common feature in financial industries worldwide since the 1990s.

On-Site Examination Policy for Fiscal 2005 (April 4, 2005; look at page 2 of the PDF file)

Outlook for Economic Activity and Prices (April 2005) (April 28, 2005; broad summary of Japanese banking situation)

Outlook for Economic Activity and Prices (October 2004) (October 29, 2004)