Then, in 1930, Junnosuke Inoue – finance minister under Prime Minister Osachi Hamaguchi – returned Japan to the gold standard, lifting the gold embargo that had been in place since World War I. Japan’s return to the gold standard meant a shift to a deflationary regime, with current deficits and price declines as a result of tight fiscal and monetary policies.
In addition, in returning to the gold standard Inoue set the exchange rate between gold and the yen at its former level, which was equivalent to excessive appreciation of the yen. All of this served to produce a deflationary recession in Japan.