In contrast, Japan’s consumer prices have fallen 4.1 percent in the past 15 years from fiscal 1998 to fiscal 2012. That is merely a 0.3 percent decline on an annual average basis. However, the deflation in Japan has been extremely persistent. Young Japanese people have been born into a life of carrying the recognition that prices either will be constant or decline.
The continuation of price declines, albeit moderate ones, for a protracted period has deprived Japan’s economy of vitality. In a state of deflation, the holding of cash or deposits will become a relatively better investment. In fact, cash and deposits held by Japanese firms have reached 230 trillion yen, close to 50 percent of nominal GDP.