Deflation in Japan started in the early 1990s. On March 19, 2001, the Bank of Japan and the Japanese government tried to eliminate deflation in the economy by reducing interest rates (part of their 'quantitative easing' policy). Despite having interest rates down near zero for a long period of time, this strategy did not succeed. Once the near-zero interest rates failed to stop deflation. Some economists, such as Paul Krugman, and some Japanese politicians spoke of deliberately causing (or at least creating the fear of) inflation In July 2006, the zero-rate policy was ended. In 2008, the Japanese Central Bank still has the lowest interest rates in the developed world, deflation has still not been eliminated and the Nikkei 225 has fallen over approximately 50% (between June 2007 and December 2008).

Systemic reasons for deflation in Japan can be said to include:

• Fallen?asset prices. There was a large price bubble in both equities and real estate in Japan in the 1980s (peaking in late 1989).?

• Insolvent companies: Banks lent to companies and individuals that invested in real estate. When real estate values dropped, many loans went unpaid. The banks could try to collect on the collateral (land), but due to reduced real estate values, this would not pay off the loan. Banks have delayed the decision to collect on the collateral, hoping asset prices would improve. These delays were allowed by national banking regulators. Some banks make even more loans to these companies that are used to service the debt they already have. This continuing process is known as maintaining an "unrealized loss", and until the assets are completely revalued and/or sold off (and the loss realized), it will continue to be a deflationary force in the economy.

• Insolvent banks: Banks with a large percentage of their loans which are "non-performing" (loans for which payments are not being made), but have not yet written them off. These banks cannot lend more money until they increase their cash reserves to cover the bad loans. Thus the quantity of loans are reduced and less funds are available for economic growth.

• Fear of insolvent banks: Japanese people are afraid that banks will collapse so they prefer to buy gold or (United States or Japanese) Treasury bonds instead of saving their money in a bank account. People also save by owning real estate.

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