(FORTUNE Magazine) – With U.S. consumer spending softening, personal incomes faltering, and the dreaded "R" word back in the headlines, pessimists are wondering if America is about to follow in Japan's footsteps. Remember Japan? In 1989--like the U.S. back in, say, February--Japan's economic model seemed set to take over the world: Its stock market was sailing to improbable record highs, and its people were gorging on new wealth. The next year the bubble burst. Since then Japan's economy has drifted.

Don't worry: Any downturn or recession in the U.S. won't last a decade. America's economy is simply more flexible and adaptive than Japan's. It is designed to take a few hits and then bounce back. No one likes business closures or layoffs, but Americans accept that they are sometimes necessary. Japan has tried to avoid the hits, in part because firings are often seen as a breach of the social contract. It has therefore prolonged its pain.

A better way to view the Japanese economy is through its golf business. Yes, golf. The travails of this industry track those of Japan's larger economy in an uncanny way. The purchase by Japanese investors of California's famed Pebble Beach golf course in 1990, for example, was the exclamation point on an era of high-profile acquisitions; after massive losses and a change of ownership, a group of U.S. investors bought it last year for less than it sold for in 1990. In Japan itself, golf-club memberships during the bubble years could cost as much as a modest suburban house. Even nonplayers traded them as if they were Pokemon cards.

Now, however, like the rest of Japan, the golf economy is a long par-5 from its glory days. New-equipment sales are falling, while those of secondhand shops are rising. Choichi Yamazaki began franchising his Golf Partner operation, which sells used equipment, in 1996; there are now 207 stores. More players are switching to cheaper, often foreign made, golf balls. And most golf course operators are losing money; those that reported improved results in 1999 cited cutting staff as the key.

These trends--layoffs, heightened competition from foreign companies, and a burgeoning bargain culture--all echo the larger economy, but do they signal that the world's second-largest economy has finally turned the corner? The answer from the 18th tee is not yet. Here's why.

First, the demand for golf is slumping. In 1999 there were fewer players on the links, fewer balls sold, and revenue dipped from 1998; in 2000 the decline has continued, albeit more slowly. That tracks with Japan as a whole, where consumer spending isn't high enough to get the economy humming.

Second, golf is a surprising player in Japan Inc.'s balance-sheet problems. New accounting rules require companies to report the fair market value of their assets (as opposed to the book price). This means that companies that bought golf club memberships must post their current market value--about 10% of their peak prices in 1990. The difference gets booked as a loss. This is no joke. At least half a dozen public companies have taken multimillion-dollar charges to clear losses on golf club memberships. The new rules, which become mandatory in March 2002, are part of an effort to clean up company books. The results so far make it clear that even ten years after the bubble burst, there are still hidden losses.

Finally, golf is being hurt by land prices, which have not yet hit bottom. That touches on the sore spot of Japan's financial woes: Banks valued real estate at ridiculously high levels when accepting it as collateral for loans. Economist John Llewelleyn of Lehman Brothers in London figures some $731 billion of doubtful loans still need to be resolved. That won't be easy, given deflation, huge public debt, and the dead hand of the country's inert ruling class.

On the positive side, what's been most interesting in Japan these past few years is its gradual (too gradual) movement away from the old ways of doing things. In golf, this is reflected in secondhand shops and efforts to draw more kids and women onto the course. In the rest of the economy, online trading, financial deregulation, shareholder activism, and banking consolidation are signs that--maybe, just maybe--Japan is really changing this time.

Heaven knows, the death of Japan Inc. has been declared before (including by me). But the trends toward greater openness, competition, private capital--and yes, caddy-free golf--do undermine its structures. That may not be good for old-style politicians, weak banks, and makers of expensive golf balls. But it is good for Japan.