(Deflation)... They never let it materialize...

Higher real-rates or lower prices or deflation makes money more valuable in terms of banks deposits and bonds owing zero nominal interest rates. Money becomes more valuable. But, some economists say that lower-price expectations make people delay spending. I think lower prices increase the value of money therefore people accumulate reserves not because they expect lower prices ahead especially in the liquidity-trap. People always think that prices would go up and they need to save more for the future. Banks also keep the long-rates higher than the short-run rates which also depend upon expectations of inflation besides just inflation. The central-banks conduct monetary easing to lower long-term rates first and then it lowers short term rates. Banks have kept long-term real interest rates higher than the short-term rates. Since zero-lower bound, nominal rates are zero we also do need to lower long term interest rates which also depend upon inflation/deflation expectations. Lower price expectation would lower long-run interest rates and inflation would increase the long-run interest-rates. Expectations depend upon right information and more on economic policy.

Keynes is right upto the zero lower bound or liquidity-trap for which he advocates fiscal policy because interest-rates are zero. Fisher talked about real interest rate i.e. inflation adjusted rates and Wicksell natural or equilibrium interest-rates at which there is neither inflation nor deflation which means constant real interest rate. The economists still say that there is no unique set of nominal and real interest rates which might be true. Non-economists people rarely think about real interest rate... they are occupied with nominal interest rate. The Fed says it is Wicksellian economy...

Japan might also target real wages to increase demand and supply and inflation by increasing consumption, and when demand goes up supply is increased to earn profits by investing more at lower prices. The forecast about the real GDP growth may influence investment decisions... Lower price increase demand and supply and consumption and investment... In the stocks lower prices are an opportunity to buy at low and sell at high... Lower inflation might lower cost and increase profits... Labour demand less wages and interest rate/cost also goes down in a low price regime... Lower prices too reduce inflation expectations and may increase spending... Lower prices help demand...

Most of the economists argue that deflation is unending and unlasting which might be wrong, because when prices fall too much demand increases and supply also goes down which may push the price-level up in the future... People know that supply is limited so they must spend now... Moreover, if they expect lower -prices they would also save less which again increase spending... Deflation might not last too long, but may help increase real-wages and demand and inflation in the time ahead, if other things are constant...

They never let it materialize... Japan always used policies to increase inflation and inflationary expectations through loose money-supply and communication... They never accepted deflation as a tool to increase demand; real-wages has been low... Although the economy is near full-employment, but lower rate of population growth is also responsible for low demand and inflation... Nevertheless, Core-inflation has shown improvement (more inflation)... Improvement in wages in yen-terms is very slow or low compared to the size of the money-economy in the yen terms... It would need a very-very big stimulus to reach the threshold that could increase wages and spending... Japan could communicate deflation and increase money-supply in order to increase real-wages and demand... Probably, 10% of the money-base...