Cover Story: China May Find Cure for Stagflation by Studying Japan’s Experience

Amid strong wage growth and rising prices, Japan is finally emerging from the quagmire of almost three decades of deflation. As China faces similar challenges that its neighbor did 30 years ago, Japan’s experience may offer lessons to Chinese policymakers about how to battle prolonged stagnation.

Japan, the world’s third-largest economy, has suffered from sluggish economic growth and recession since the early 1990s, yet it has maintained its status as a highly developed economy, avoiding the middle-income trap. The country has maintained fiscal sustainability, social stability and welfare levels, all while dealing with an aging population. Where potential lessons may lay are in the answer to the question of whether Japan could have avoided years of zero growth had it pursued different monetary policies or adjusted its policies sooner.