Why avoiding 'Japanification' could be a massive task

摘要

1. Japanification risk' is back on the agenda in the context of a slowing world economy. Japan's struggle to drag its economy out of an entrenched deflationary cycle offers a cautionary tale for other economies such as the eurozone, demonstrating the enormity of the policy effort needed. 2. Low inflation and low growth in Japan are linked to demographic and monetary factors, against which Japan has intensified policy efforts since 2011-12. Japan can claim some success in boosting workforce participation but productivity growth has stalled while monetary policy efforts have delivered limited gains. 3. The eurozone has avoided some of the early policy errors made by Japan and taken a number of steps to tackle 'Japanification' risks. But productivity growth has flagged even more than Japan's in the 1990s, and parts of the eurozone still risk sliding into deflation if the global downturn worsens. 4. The eurozone's policy options to fight 'Japanification', particularly at the individual country level, are more limited than was the case in Japan. Further 'heavy lifting' by the ECB would be required - implying downside risks for the euro and bond yields staying low, if not compressing further.