I am treating this as a separate topic because several Japanese business leaders indicated to me during my July 2002 visit that they are lobbied hard by the Bank of Japan to accept the BOJ's current position, and that they are very concerned about these issues.

The recent proposals of the Koizumi government for economic stimulus also acknowledge the conflict over the potential role for expansionary monetary policy as part of a policy package.

Japanese business and government are right to be very concerned about deflation: deflation makes all economic problems worse, particularly the bad-debt problem, and interferes with structural reform. The longer deflation is allowed to go on, the more difficult it is to reverse it, and the harder it is to control.