The Pigou Effect and Japan
If the Pigou effect always operates strongly, the Bank of Japan's policy of near-zero nominal interest rates might have been expected to end the Japanese deflation sooner.
Other apparent evidence against the Pigou effect from Japan may be its long period of stagnating consumer expenditure whilst prices were falling. Pigou hypothesised that falling prices would make consumers feel richer (and increase spending) but Japanese consumers tended to report that they preferred to delay purchases, expecting that prices would fall further. A similar, reverse Pigou effect happens throughout the world in consumer electronics because of depreciating prices (this is sometimes called the Osbourne effect).
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