The Group of Seven countries on Thursday agreed to intervene to reduce the value of the Japanese yen, which has surged to record levels after last week's earthquake and tsunami. A strong yen could cripple the country's exports and further damage its economy.
Asian markets were mixed Monday. In Japan the Nikkei 225 Index rose 1.1%, helped by new numbers showing the nation's economy outpaced economists' predictions and grew more than expected in the third quarter. In China the Shanghai Composite Index advanced 1% and Hong Kong's Hang Seng Index slid 0.8%.
Since Japan's bubble burst in 1989, its economy has stagnated, and the world no longer feels threatened by the Japanese juggernaut. Nevertheless, many Japanese management principles still make sense.
Japanese stocks rallied Tuesday after the Bank of Japan announced it would slash its benchmark interest rate to near zero in an effort to revive its sluggish economy.
Major structural and cultural differences between the U.S. and Japan mean that Treasury bond investors simply using Japan as a template for how things will unfold here may be overlooking important factors. Key among them is a growing realization that Japan may have collectively opted for deflation.
Mired in deflation and stagnant for decades, Japan has been the economic basket case of the developed world. But the world's third-largest economy is getting an unexpected lift from roaring growth in emerging markets.
Presciently bearish David Rosenberg, the chief economist and strategist at Gluskin Sheff: "We can understand that this is not exactly cocktail conversation, but this is a Japanese-style (even worse perhaps) modern-day depression."
Investors and policymakers alike are seeking to avoid a painful Japan-like deflationary spiral. Rather than artificially propping up demand, the U.S. should look to Germany, which is banking more on manufacturing to tap into surging global demand.
Beneath the bright lights of Tokyo and the evident wealth generated by decades of hard work and Japan Inc.'s massive global export machine lies a different reality: increasing poverty and decreasing opportunity for the nation's young people. It's a warning to America.