The Japanese Recovery After Deflation

Japan’s economy has rebounded on the back of Abenomics, the policy of quantitative and qualitative easing that has devalued the yen and given Japanese export-based businesses a much needed competitive edge. Even though Japanese Prime Minister Shinzo Abe’s coalition won an important electoral victory that cemented his economic approach, devaluation has recently subsided, causing some to worry that the recovery could be in trouble. According to Societe Generale analysts Takuji Aida and Kiyoko Katahira, Japan needs a few more years of devaluation to rebuild aggregate wages before the recovery is secure.

Export-led recovery in productivity

Aida and Katahira figure that Japan needs to pass through five distinct financial stages before it will have finally...