Effects of deflation in Japan

The global economic crisis hit Japanese economy hard, making it contract for the third straight quarter at the end of last year. The decrease in external demand for Japanese products and a weak domestic demand (pushed down by deflation in the economy) were the reason why GDP declined. In order to reverse the effects of deflation, Japan´s new government approved a stimulus package of 10.3 trillion yen ($116bn), which includes investment in infrastructure and incentives for businesses to boost investment, resulting into the creation of 600,000 jobs and is estimated to grow the economy in 2%. At the same time, Japan´s Central Bank doubled its inflation targets to 2% in order to combat deflation, which has been negatively affecting Japanese aggregate demand, since consumers tend to push off purchases in hope to get a cheaper deal in the future.