The past decade should have taught us to be wary about predictions of radical policy shifts in Japan. It should also have shown that the health of the world economy, let alone regional security, is not dependent on growth in Japan. Another issue is whether Japan's experience in the 1990s shows what the United States has in store. But this is hardly a revelation. A more competent policy response is a key reason why the United States is unlikely to repeat the Japanese experience.
Problems Identifying the suitable solution depends on the correct diagnosis of the problems.
A more sophisticated structural argument is that demographic problems produce an excessive intention to save, and the result is weak demand. An alternative view of the past decade is that the main problems have been cyclical, based on inadequate or ineffective attempts to stimulate growth. Moreover, even with zero interest rates, monetary policy is still too tight. The third view of Japan's problems is that they are a legacy from the late 1980s bubble. As asset prices collapsed, this put huge strains on the balance sheets of the corporate sector in general, and on those of banks in particular.