It might be worth pointing out that the asset inflation and then deflation in Japan had very little effect on the CPI at the time.
The current waves rolling through the the US cpi have a lot more to do with commodity prices which collapsed on general fear and anticipation of the recession. This is distinct from the collapse in the financial bubble and house asset prices.
So I do think the comparison with Japan is a little off in current circumstance. I'm not trying to say here that the deflation argument is wrong (although I tend to disagree with it generally) - but my only point here is that the Japan comparison isn't the right reason to argue for the deflation.
When you've got a fiat currency with a central bank printing money all over the shop - then really it's the market which determines whether deflation is going to happen - by hoarding cash, reducing demand etc... As opposed to say in the depression when the government arbitrarily imposed deflation via its monetary policy.
Now the market is currently choosing deflation because a) They already believe in it (self fulfilling prophecy) and b) because of the belief in a really bad recession. The biggest evidence of this is the flight to cash and bonds.
But the market is stupid short term - and we should be confident of this as anything. What it chooses today could be something totally different tomorrow.
Really - the deflation, inflation argument hangs on a single thread - the choice of the market. I'm currently getting a little worried because the US government is dilly-dallying over its stimulus efforts. If it continues to do this - the market will continue to choose deflation.
