Deflation is not yet beaten in Japan. After ten months of mild inflation, consumer prices fell 0.2 percent in February. The data was particularly bad news for the Japanese central bank, who had been trying to raise interest rates and after several years of free credit, restore monetary policy to something closer to normality. Unfortunately, February’s data suggests that the recent interest rates hike was premature.

Japan continues to act as a warning to others about the dangers of speculative bubbles. The long cold winter of deflation followed on from an extraordinary asset bubble from the late 1980s. Speculation was quickly followed by a recession, a banking crisis and higher unemployment. The government’s repeated attempts to kick start the economy with higher fiscal expenditure have largely failed and led to rising public sector indebtedness.