The result is higher domestic costs worldwide, higher savings, less investment, and no impact on exchange rates. High interest rates worldwide can only mean a world slowdown. Similarly, policies to boost exports while cutting imports, applied everywhere at the same time, generate a world depression. The disease is the propensity to high savings rates. The high savings rate in Japan has been precipitated by both a sense of crisis that has been simmering in Japan throughout the 1990s, and by fears relating to a perceived reproductive crises - too many old Japanese and too few young.
High savings mean low spending which means low investment which means negative economic growth.
Savings intended to protect Japanese in retirement in fact create the crisis that the savers were trying to avoid. The Japanese economic cake is shrinking, which means less on average in future for each Japanese, regardless of their savings. The question we must ask, and that Krugman certainly does ask, is to what extent are other people behaving in the same way as the Japanese. Indeed the country most like Japan is Italy, which has very low birth rates and high savings rates. But it's a common and growing pattern in Europe.