Well before the fear of “secular stagnation” became common across the developed world in the aftermath of the global financial crisis, Japan was unhappily showing the way. For almost two decades before the crisis, Japan recorded weak economic expansion and frequent deflation as it struggled to escape the aftermath of the 1980s property bubble.
In reality, given its low to negative population growth, Japan’s economic performance was more impressive than it seemed. Still, the country experienced the dangers of deflation, and the need to use all tools of policy to boost growth, earlier than most.
The uncertainty with which Japan learned that lesson, however, was reflected in its response to the global financial crisis, which threatened to lock the economy into permanent stagnation. The US unleashed quantitative easing as soon as 2008 and enacted fiscal stimulus in 2009. It was not until 2012, with the election of Shinzo Abe as prime minister, that Japan embarked upon a determined campaign of fiscal and monetary expansion, together with a stated aim of structural changes to increase long-term growth.