Japan is not experiencing a recession or stagflation. In fact, Japan likely is — and has been — a healthy growing economy for the last 20 years. The reason Japanese gross domestic product appears flat-lined is due to a simple quirk of macroeconomics: a quality bubble.
I came to this realization first by simple observation. As anyone who has visited Japan can attest, the quality of services consumed in daily life is extremely high. Whether it's a set-menu lunch, or help at a department store, Japan's domestic services are superior to almost any other first world economy; including the United States.
This led me to wonder: Could Japan's GDP calculations not accurately be taking into account the quality of domestic life? As any economist can attest, GDP is a notoriously inaccurate standard of measure. In particular, GDP's market-basket calculations break down if prices aren't rising with quality improvements. I believe this to be the case in Japan.
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