Chronic Deflation and QQE A. Decline in the Natural Rate of Interest and Chronic Deflation Now, let me start with Japan's experience of deflation. In Japan, after the burst of a large-scale asset bubble in the early 1990s, the economy decelerated significantly and the inflation rate declined gradually.
The economy fell into deflation amid the successive collapse of major financial institutions in the late 1990s. Thereafter, except for some periods when commodity prices surged, the CPI inflation rate remained in negative territory for about 15 years (Chart 1). Why did Japan's economy fall into deflation and face difficulty in getting out of it for a long time?