Japan’s economy, stagnant for 16 years, is facing challenges quite different than those from US and Europe. There is no housing bubble or credit crunch in Japan. After a decade of stagnant and deflation ridden 90’s, Japan’s economy started improving in early 2003. But this time the industry has wrongly bet that the Yen will continue to remain weak for the next decade. The industry output greatly expanded in the next 4 years giving a boost to the economy. Now the Yen appreciated against all currencies and the “export bubble” burst. Japan’s economy fell again and now it is at 1993 levels in nominal terms. It is strange to see how the world’s second largest economy has lost more than a decade without any growth.

The earlier quantitative easing measures (printing money in simple words) in 90’s did not yield results as the accompanying slowdown in fiscal spending did not create any inflationary boost. Japan is trying its hand at fiscal stimulus again and it hopes to revive the economy this time.