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rade deficit is such a concern for Japan.

The drastic move away from nuclear energy to more conventional ones exposes the country to high energy prices which, together with a strong domestic currency, further worsen the current account. The Japanese Yen has been appreciating due to the recent economic environment. As the prospect of slow growth impacts investment sentiment, there has been a shift into the Yen as a safe haven asset. However, a current account deficit usually results in a weaker currency. The net effect on the Yen will depend on the relative strength of those factors.

Japan's unique circumstances puts the country into a dangerous position. Perhaps this is why exports plays a much more vital role for its economy. Facing a rapidly aging population and after decade a economic malaise which put Japan into a chronic deflation, savings rates of consumers have been falling and this affects the government's ability to finance its deficits. Conventional monetary policies are ineffective as interest rates are at a near zero.

Furthermore, the 2011 earthquake led to increased the spending by the Japanese government in an era of high public debt. Thus, Japan is fiscally constrained and can do little to counter a negative trade balance without risking a sovereign downgrade by ratings agencies. To address their fiscal problems, the government has recently planned to raise its consumption taxes. While in the longer-term this policy move is rational, in the short term it is an absurdity precisely because it is contractionary. An increase in the consumption taxes reduces consumption.

By analyzing the components of aggregate demand (AD), we can analytically see why Japan's situation is so troubling :

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The last component of the aggregate demand is similar to the current account. The fall in net exports is attributable to the perception of the Japanese Yen as a safe haven currency and to the fall in global demand. A weak global economy sends investors fleeing into the Yen and thus, this increases the demand for the Japanese currency. This has the effect of shifting the demand for Yen to the right:

The stronger the Yen increases the purchasing power of Japanese citizens for foreign goods while at the same time lowering the purchasing power of other countries citizens for local goods. Thus, net exports fall.

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Using the AD-AS diagram, we can show the detrimental effects on the country. Since aggregate demand in an economy consists of net exports, a fall in net exports constitute a decrease in AD and the curve shifts left. The eventual increase in consumption taxes will also adversely affect aggregate demand and further shift AD to the left. As a result, it is easy to understand why economic recovery might be affected as real GDP falls.

It is also noted that deflation might get worse as aggregate demand contracts. Due to lesser demand in the economy, the price level also falls.

Conclusion 结论
The Japanese economic puzzle is extremely hard to solve. Indeed, the Japanese themselves have been dragging their feet towards a solution. Undeniably, it all started when the Japanese housing bubble burst in the early 1990s which resulted in a ''lost decade''.(Bubble Burst) The slow recovery has been worsen by the great financial crisis, an unfortunate natural disaster and more importantl