It has then increased somewhat since the turn of the millennium, but the trend decline in the growth rate continues. In this situation, people will have lower expectations concerning future income growth and their spending and investment will be restrained, which will in turn lead to price declines.
The deflation in Japan should be understood as a manifestation of the fundamental problem facing the economy, namely the decline in growth expectations. Even though Japan’s economic growth rate is trending downward, the GDP growth rate per worker, or, in other words, the productivity growth rate, has been 1.6 percent per year on average over the past decade.