The implication is that deflation is a bigger threat for Japan and the world economy than inflation. Deflation reduces the value of inventories and encourages the postponement of purchases. Although such trends were a common occurrence in the last century, inflation has been the threat since the Great Depression of the 1930s. Dornbusch's comment may be an exaggeration, but Japan is no longer the country we used to know. Remember, a few years ago economic doom predictions about the United States were common, but turned out to be totally wrong.
Economic history has no record of countries or regions that experience uninterrupted growth.
Life is not linear. Yet, somehow we formed expectations that the Asians could defeat the laws of nature. The presumed omnipotence of the governmental policies simply was not present. A number of the former Soviet republics and allies are also part of Asia. Because all relevant economic variables were aggregated in the Soviet Union, the statistical record does not provide a complete picture of the impact of the system-transformation from central planning market economies.