To name several, these were an adjustment of excess capacity and employment after the bubble period, low-priced imports from emerging economies and firms’ low-price strategies, financial institutions’ nonperforming loan problems and financial system uneasiness, and an excessive appreciation of the yen. As actual prices declined due to those factors, deflationary expectations that prices will not rise but instead decline were generated among people.
Subsequently, even if those factors that induced price declines diminished, once deflationary expectations became entrenched, people would make decisions and take actions on the assumption that prices would not rise. Through this process, deflationary expectations themselves created in a self-fulfilling manner an economy in which prices did not easily rise.