ABSTRACT
This chapter examines the controversies surrounding monetary policy and deflation in Japan from the 1990s to the early 2000s. As the global economic crisis after the Lehman Shock led many central banks to the lower bound of policy interest rates and forced them to set out unconventional monetary policies. The BOJ enforced to adopt ZIRP at the end of the 1990s and QE at the beginning of the 2000s. The annual rate of change in the money supply and in the monetary base declined sharply in the middle of 1990, when the BOJ steadfastly increased the interest rate. The economist who first paid attention to this serious contraction in the money supply that broke out in the middle of 1990 and issued cautions about its consequences was Yuji Shimanaka, a representative monetarist in Japan. Japan's liquidity trap situation attracted worldwide attention when the Japanese economy was involved in an unprecedented economic and financial crisis from late 1997 to early 1998.
