Japan Is the Battleground for Monetary Theorists; The Architects of the 2% Inflation Standard Can View Japan as a Laboratory Where the Most Powerful Non-Conventional Tools Have Been Deployed

And in looking further back, to before the journey started, the huge scope of the Japanese bubble and bubble economy in the late 1980s is a challenge to any serious purveyor of monetary or broader economic theory. Can this theory explain what happened and what went wrong in Japan? Our examination should also test any such theory in the story of Japanese deflation (itself largely myth rather than fact). The battle has been joined by sound money theorists drawing on Austrian School economics, who argue that Japan’s and indeed the globe’s economic outcome would have been much better if in fact there had been some period of declining prices.

We could describe Japan as the battleground for monetary theorists. The architects of the 2% inflation standard can view Japan as a laboratory where in recent years the most powerful non-conventional tools yet have been deployed. The Abe government was victorious in the political arena in terms of taking Japan on to the 2% inflation standard and in authorizing such tools. And at the time of writing, the world is basking in a stock market boom and global economic upturn in which Japan is fully sharing. Its apparent successes could be pyrrhic if indeed Japan adds to the evidence that the 2% global inflation standard is harmful to prosperity.

—Brendan Brown, The Case Against 2 Per Cent Inflation: From Negative Interest Rates to a 21st Century Gold Standard (Cham, CH: Springer International Publishing, 2018), 96.