What is meant by “Japanification of the economy”?

“Japanification of the economy” normally entails three main trends: Population ageing, which is expected to lead to inflation and to a lower savings rate. In Japan, inflation has been kept at bay by labour market flexibilisation; the household savings rate has fallen, but corporate savings have not fallen at all; A significant skewing of income distribution to the detriment of wage earners, leading to low labour cost growth and an absence of inflation; and to excess corporate savings and therefore the need for constant fiscal deficits. This explains the considerable increase in Japan’s public debt; A tight monetary policy constraint, as the central bank has to keep short- and long-term interest rates at zero due to the increase in the public debt. Is the euro-zone economy going to “Japanify”? There will be population ageing, but, unlike in Japan, it could be inflationary, as labour market flexibilisation has already taken place in the euro zone; The skewing of income distribution against wage earners is much less extreme than in Japan, and it is unlikely to give rise to a situation of huge excess corporate savings; The constraint on the central bank due to the level of public debt is present, like in Japan, but it risks being more complicated in the euro zone than in Japan. First, capital is more mobile in the euro zone, as the euro zone lacks Japan’s “financial nationalism”: zero interest rates risk triggering large capital outflows. Second, if inflation returns to normal, the ECB would have to keep real long-term interest rates negative, leading to the need for even larger government bond purchases than in Japan, where mostly zero interest rates mean that zero real long-term interest rates are sufficient .