As hysteresis became embedded in Japan's economy, firms started to be more cautious in setting sales prices and households became less tolerant of price rises. Consequently, prices remained sluggish for a protracted period.
The behavior of firms to pass cost increases on to sales prices -- which I mentioned -- has not grown widespread so far, and I find this partly attributable to the persistent deflationary mindset that has been constraining inflation. 5  The second factor is that upward pressure on wages has been weak.