Japan is an important lesson from the 20th century, for those who are capable of learning.
She had a financial meltdown arising from a real estate bubble. The Japanese stock market dropped to one third of its previous high and the economy has bumbled along at roughly 1% GNP growth for 20 years. During the entire 20 year period there has been a significant deflation and near zero interest rate.
In the early part of this strange twenty-year period the Japanese took the advice of Paul Krugman and used Keynesian stimulus to try and gain rapid growth. The growth did not come but the debt became a multiple of the GNP. Very simply Keynes failed.
The Japanese in the 1970s were very pragmatic and inflated the yen just as the oil crisis hit the US and Europe causing slow out-of-control inflation. Japan had no inflation. Japan had very rapid economic growth in that period.
Today, according to my friends in Japan, the Japanese have become pragmatic again. They are accepting a modest growth because it turns out to be real growth for the population when the deflation is taken into account. Part of the deflation is caused by low prices from China. This is much appreciated.
Japan is allowing the yen to appreciate on the world market, again because their own experience suggests that this generates domestic efficiencies which produce future export gains.
Lastly, the Japanese are accommodating to the current economic conditions and have found a significant and expected boost in employment and economic development as they replace the damaged facilities in the northern tsunami ravished regions.
Japan is in good shape.