Paul Krugman

TOKYO — Visitors to Japan are often surprised by how prosperous it seems. It doesn’t look like a deeply depressed economy. And that’s because it isn’t.

Unemployment is low; overall economic growth has been slow for decades, but that’s largely because it’s an aging country with ever fewer people in their prime working years. Measured relative to the number of working-age adults, Japanese growth over the past quarter century has been almost as fast as America’s, and better than Western Europe’s.

Yet Japan is still caught in an economic trap. Persistent deflation has created a society in which people hoard cash, making it hard for policy to respond when bad things happen, which is why the businesspeople I’ve been talking to here are terrified about the possible spillover from China’s troubles.

Deflation has also created worrisome “debt dynamics”: Japan, unlike, say, So Japan needs to make a decisive […]