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Japanization: is it spreading to the rest of the world?

In: Economic Stagnation in Japan

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  • Takatoshi Ito

Abstract

Japanization is defined as a combination of (1) a lower actual than potential growth rate for an extended period; (2) a natural real interest rate below zero; (3) a nominal (policy) interest rate at zero; and (4) deflation (a negative inflation rate). A proposed Japanization index measures these conditions. Japan entered this state through (1) its 1990s overkill of the bubble; (2) a nonperforming loans problem resulting in a major banking crisis; (3) failure in engineering a soft landing of the banking crisis; (4) failure to adopt quantitative easing early and decisively to get out of deflation; (5) failure to adopt an inflation targeting regime; and (6) failure to adopt a large fiscal stimulus. Ongoing success of Abenomics in lifting the economy out of deflation shows it is possible to prevent or cure Japanization.

Suggested Citation

  • Takatoshi Ito, 2018. "Japanization: is it spreading to the rest of the world?," Chapters, in: Dongchul Cho & Takatoshi Ito & Andrew Mason (ed.), Economic Stagnation in Japan, chapter 2, pages 17-55, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:17837_2
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    Cited by:

    1. Guilmi, Corrado Di & Fujiwara, Yoshi, 2022. "Dual labor market, financial fragility, and deflation in an agent-based model of the Japanese macroeconomy," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 346-371.

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