Japan’s ‘Lost Decade’ Wins Fresh Attention – James Mackintosh, Financial Times
“The 1990s were certainly bad for Japan. Gross domestic product rose at half the rate of slow-growing France and a third that of the US. The Nikkei 225 index halved from its peak above 36,000…On paper, the 2000s too look dire: GDP rose only 10 per cent from 2000-08, just over half the UK or US level, even after Japan belatedly addressed its troubled banking system and embraced limited quantitative easing. But as economist Andrew Smithers points out, the ageing of the population affects the data. GDP per person of working age rose at more than double the rate of Germany, faster than Britain and close to that of the US…Japan’s experience suggests economies can function perfectly well with entrenched deflation, something history confirms. Britain spent half the years from 1800 to 1880 in deflation and the US a third…Central bankers have yet to work out how Japan in the 2000s avoided the dark side of deflation, the Great Depression-style downward spiral of rising debt and falling output. But for investors Japan carries just one lesson: deflation means falling shares and rising bonds, even if the economy survives.”