Amid protracted deflation, corporate profits and wages have been compressed, the spending of firms and households has declined accordingly, and Japan’s economy has become oriented toward contraction. Under deflation, as the real value of cash rises with a decline in the prices of goods and services, saving cash at hand will be relatively advantageous, rather than making investment that pursues new opportunities.
In such a situation, the incentive to take on challenging new business opportunities will decline and people’s mindset as a whole will become pessimistic, thereby depriving Japan’s economy of vitality.