Japan’s economy has been experiencing a deflation and there has even been 0% interest (sometimes in the negatives, why is this a bad thing?

Question

Japan’s economy has been experiencing a deflation and there has even been 0% interest (sometimes in the negatives, why is this a bad thing?

In: Economics

Answer 1

Deflation means that people and businesses are incentivized to hoard cash (like physical paper currency) instead of lending or investing it. This then makes it hard to open or expand businesses, which then makes the deflation worse, and then makes it even harder to open or expand businesses.

What compounds the problem even more is that many institutions (including the government) have borrowed billions of dollars betting that the deflation will stop, but instead, it just keeps getting worse and worse, making their bets further and further in the red.