Why China’s Deflation Is Different From Japan’s

Many people compare China’s current economic slowdown to Japan’s deflationary period after the 1990s. But the comparison may be missing one major point: Japan entered deflation from a very different starting position.

In the 1990s, Japan was extremely expensive relative to the rest of the world. Falling prices helped the economy regain competitiveness over time. China today is different. China is not starting from the same high-cost position, and its currency has weakened rather than strengthened — which changes the deflation story completely.