In 2012, when Japan was dealing with chronic deflation, policymakers were right to embrace monetary easing, including lower interest rates. Today, however, Japan faces the opposite problem: a weak yen, combined with higher interest rates in the US, calls for a much tighter monetary policy.
NEW HAVEN—On a recent visit to Sapporo, the city on Japan’s northern island where my parents came from, my wife and I found gentle people, mild autumn days, and excellent food. As tourists who live and work in the United States, we also enjoyed very low prices: lunch at a high-quality restaurant cost only about $20 per person. While that was convenient for us, like so many other tourists who have headed to Japan to take advantage of favorable exchange rates, the cheap yen (yen yasu) has been hard on Japan’s economy.