In Japan, traditional macroeconomic mechanisms are nowhere to be seen

The mechanisms conceived of by traditional macroeconomics cannot be seen at all in Japan, since: Population ageing has led to neither inflation nor an external deficit. Rapid money supply growth has not led to higher inflation. Full employment has not brought about an acceleration in wages or in inflation. The highly expansionary monetary policy (zero interest rates, rapid liquidity expansion) has led to neither asset price bubbles, nor a significant rise in private debt, nor capital outflows leading to a depreciation of the exchange rate. The very high public debt ratio and the constantly expansionary fiscal policy have not given rise to a crowding-out effect (a rise in interest rates that reduces domestic demand). Japan’s experience might therefore be an argument in favour of economic policies such as those espoused by modern monetary theory (MMT), with full employment ensured by an expansionary fiscal policy and monetary financing of fiscal deficits. The fact remains that the Japanese economy has specific characteristics: stagnant wages and zero interest rates are tolerated, and there is a strong preference for assets in local currency.