ABSTRACT
Japan has now been mired in economic stagnation, punctuated by recurrent recessions, for the past two decades. What are the causes of this longstanding malaise? Is it merely the natural consequence of financial retrenchment and the onset of a pervasive “liquidity trap” after the collapse of the “bubble” economy in the early 1990s, or does the present slump signify a more profound historical phase of structural decline? The aim of this chapter is to provide several tentative answers. In the first section, some of the possible causes of this phase of prolonged stagnation will be examined. Section 2 evaluates whether the historical evidence lends credence to the debt-deflation theory of depressions. Section 3 examines the possible international repercussions of Japan’s recent resort to competitive devaluations in order to engineer an export-led recovery in the wake of the global financial crisis. More specifically, what is the likelihood of the outbreak of currency and trade wars as a result of the Japanese state pursuing aggressive monetary easing in order to induce a sharp devaluation of the yen in the aftermath of the current continuing global capitalist crisis?
