Hiroshi Watanabe, Japan's former top currency diplomat, recalls how Chinese policymakers eagerly studied ways to avert a Japan-style burst of an asset bubble that led to prolonged deflation and economic stagnation - until around 2015.
The world's second-largest economy is in the spotlight as a country on the brink of"Japanization," a term describing Japan's 15-year period of low growth and deflation after the burst of an asset-inflated bubble in the late 1990s. "It's not clear yet whether China is heading toward a situation similar to Japan. But it's true China's real estate sector - the backbone of its economy - is slumping, youth job losses are rising and inflation is weakening," he said in Japan.
Back during its deflationary period from 1998 to 2013, Japan saw core consumer prices fall 0.2% on average, as slumping property prices hit bank balance sheets and cooled investment. For now, the IMF does not see a big risk of China sliding into deflation with inflation seen accelerating, backed by a recovery in demand, Krishna Srinivasan, director of the lender's Asia and Pacific Department, told a briefing on Friday.
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