I respect Krugman's intelligence, even while I despise his nasty partisanship.
It seems to me Krugman is portraying one possible scenario, but I don't think it is a particularly likely one. I am still in the camp that sometime in the next few years we will see a significant uptick in inflation that likely will hit double digits. Personally, I don't think this is a bad thing, since I believe most of our problems would go away if we could magically raises prices on all assets by 20%.
However, I think it is folly to use Japan as a model for what will happen. The differences between Japan and US are more important than the similarities. Yes both countries had a housing/real estate bubble. Beyond that they don't have much in common.
First the Yen while always an important currency, has never been the World reserve currency. The unique role of the US dollar makes comparison really hard. Of course if the US dollars gets replaced by the Euro or a barrel of Sweet Saudi crude than god knows what happen.
Second Japan and the US economy and society are pretty much polar opposites. At least for the last couple of generation, Japan is an insular place, with a huge saving rates, and heavily export oriented. The US is has large number of immigrants, almost no savings, and heavily dependent on imports (albeit a lot of exports also). I have heard other say that Japanese were ashamed of their consumer binge, where as in America even the most shameful behavior leads to a book and nationwide book tour.