What Happens
As prices fall, the amount of goods and services that can be bought with the same amount of money increases, so the real value of cash and deposits relatively rises. At the same time, corporate sales and profits tend to struggle, which is thought to lead to sluggish wage growth and weaker consumption.
Relationship to the Deflationary Spiral
A vicious cycle in which falling prices trigger weaker corporate earnings and lower wages, which in turn drive further declines in consumption and prices, is called a "deflationary spiral." Japan is known to have experienced a prolonged period of stagnant prices in the past, but the future course of prices and the economy cannot be predicted with certainty.