Japan is suffering from a rare illness that many countries wish they could catch. The economy has more production than demand can absorb. Are savings too high or is consumption too low?
This is not a new question. Household thriftiness enabled the country to achieve a high rate of capital accumulation and post a huge trade surplus, laying the foundation for economic success. But now consumer frugality constitutes a weakness. As companies slash capital investments and overseas orders take a direct hit from the global slowdown, the gap between potential output and real demand has widened alarmingly.
People are more familiar with the world of inflation, which occurs when consumer spending exceeds what factories can churn out. Because of the imbalance, prices are pushed upward while production gets a welcome boost.