But, it's also true that the mood of the populace has a lot to do with a deepening deflationary trend.
Read this excerpt from Robert Prechter's book, Conquer the Crash:
The psychological aspect of deflation and depression cannot be overstated. When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices.
And, now, Bank of Japan Governor Haruhiko Kuroda is also saying that a big part of deflation is psychological. Read this excerpt from a Nov. 13 Bloomberg article titled, "Kuroda Says Not Easy to Dispel Japan's Deflationary Mindset":
Bank of Japan Governor Haruhiko Kuroda said the central bank can help avoid negative price shocks and achieve its 2 percent inflation target by working on inflation expectations through forward guidance.
"Although there remain issues to be resolved to achieve the price stability target of 2 percent, the environment surrounding prices in Japan has improved steadily compared to five years ago," Kuroda said in a speech at the University of Zurich's Swiss Institute of International Studies on Monday. "It is not easy to quickly dispel the deflationary mindset that has formed over the course of 15 years of deflation."
The BOJ remains far from its 2 percent inflation target even after more than four-and-half years of massive monetary easing. Kuroda has repeatedly said that the central bank needs to continue with its stimulus, even as other central banks begin taking steps to tighten policy.You can read the entire article by following the link below: