During this period, deleveraging in the banking sector and the resolution of the three excesses in the corporate sector continued. For example, the amount outstanding of bank lending, which stood at more than 500 trillion yen in the second half of the 1990s, fell below 400 trillion yen in the mid-2000s – a drop of more than 20 percent (Chart 1).
The decline in bank lending through this deleveraging process finally came to an end in 2006, when bank lending rebounded. Moreover, in the same year, CPI inflation returned into positive territory, so that deflation temporarily receded (Chart 2). Fortunately, Japan had been able to avoid a 1930s-style deflationary spiral with a rapidly deteriorating economy and falling prices.