Recently, the Japanese media has been obsessed with defure, or deflation.  The September annualized rate of deflation for Japan was 2.24%, compared to September annualized deflation rates of 0.18% in the U.S. and 0.80% in China.  Canada, the U.K., Australia, and the European Union had very low rates of annualized inflation in September.  However, it is inconsistent for the media to panic about anomalous low-single-digit deflation while ignoring the well-documented effects of seventy-five years of chronic inflation.  The rationale for the panic is that deflation can lead to a liquidity crisis (government stimulus is rendered impotent) and/or a deflationary spiral (hyperdeflation); yet, in apparent blindness to the lessons of history, inflation is near universally considered a necessary evil, and the idea that inflation could lead to an inflationary spiril is underserved. 

First, an explanation of the relevent terms: originally, inflation meant an increase in the money supply, and deflation meant a decrease in the money supply.  However, modern understandings of the terms are more nuanced; now inflation and deflation are related more to purchasing power and price levels.  Because when there is more of something it becomes less valuable, inflation is now understood as a devaluation of currency.  Deflation is when a currency becomes more valuable.  Usually during economic booms, there is a robust rate of inflation as people move their collective wealth from cash-based resources into assets; there is more cash around, so people treat it with less respect and tend to spend frivolously.  During recessions, people tend to value security over potential profits, and attach more value to cash-in-hand; a dollar is worth more as a result.  Deflationary periods indicate increasing aversion to risk among the population, but not neccesarily recession: in the late nineteenth century the U.S. experienced both persistent deflation in the absence of a central bank and high rates of economic growth.

Some regard the Great Depression as an example of a deflationary spiral, but the concept is largely confined to theory and controversial: there has never been an instance of hyperdeflation in recorded history.  From 1929 to 1933, prices in Great Britain fell 33%, but this was in linear - not hyperbolic - fashion.  On the other hand, there have been many documented instances of hyperinflation, especially in the twentieth century in countries with central banks and often associated with war and/or ethnic cleansing.  In the years during and immediately after World War II, Greece, Hungary, and China experienced rapid devaluation of their currencies.  In July 1946, prices doubled every fifteen hours in Hungary.  Other examples of devastating hyperinflation include that of the Weimar Reichsmark in 1923, leading to the rise of Hitler, Yugoslavian hyperinflation in 1994, and the 2008 hyperinflation in Zimbabwe.

There are actually many arguments in favor of a liberal, sometimes deflationary currency: one is that deflation makes necessities more affordable, thereby reducing poverty along with the length and severity of a particular recession.  Often, as in the Japanese case, an active central bank policy is the only thing preventing deflation.  Let us not forget that currencies deflate all the time - relative to other currencies.  Why are they not allowed to deflate relative to soy beans or new cars?  In Japan, after World War II, the exchange rate was fixed by the occupying authority at 370 yen to the dollar as a way to foster the development of a cheap Japanese manufacturing exports industry.  When Nixon ended the gold standard in 1971, thereby ending the era of fixed exchange rates, the yen took off, reaching a high of 80 per dollar in 1995 before the Japanese central bank began purchasing dollars en masse to save Toyota et al.  During this period of Japanese yen deflation against the U.S. dollar, Japan experienced one of the more rapid rates of economic growth in world history and developed a quintessential middle-class economy.

The most obvious argument in favor of allowing deflation is that deflation is the currency market's attempt to correct for chronic undervaluation.  A good metaphor for this would be building a dam against the flow of a very powerful river.  It had been the policy of the Japanese government for nearly fifteen years of stagnation to purposely devalue the yen to make Japanese exports more attractive to foreign consumers.  When Yukio Hatoyama's Democratic Party of Japan took power this past year, Japanese currency policy changed: the dam fell into disrepair and the river's water began gradually leaking through.  As such, the Democratic Party of Japan seems to believe the maintenance of the dam - i.e. persistent purchase of U.S. dollars to artificially devalue the yen - is more costly than letting the dam be overrun by the force of the river and taking advantage of the effects of a flooded valley.