One reason people feel that the Japanese economy is stagnant is the long bout of deflation. Once deflation psychology has set in, it is very difficult for both firms and people to shed it.
With such psychology, firms fear raising the prices of their products and services, so they concentrate instead on reducing costs, which often results in cutting wages and eliminating jobs. Consumers tighten their purse strings to save money, losing confidence in future prospects. The overall effect of this behavior by firms and people dampens investment and consumption, aggravating the economic downturn.
The Kan administration expects the consumer price index to level off, on average, in 2011, thus ending the negative price rises for three consecutive years. It expects that, halfway through 2011, the monthly consumer price index will start showing a rise from the same month in 2010. The government and the Bank of Japan should adopt timely measures to stimulate economic activities.