How did Japan end up with deflation ?

I cannot find any answers how a country like Japan ended up with deflation in the first place. Yes, the CB had 0% until 2006 trying to fix the problem with no luck after the Asian financial crisis in '97 but was this the main reason?

I have asked several people with experience with no luck, maybe someone around here knows it.

This is a pretty good simple explanation:

Japanese Asset Price Bubble

The Lost Decade

Look up Debt Deflation....particularly Fisher's Debt Deflation of Great Depressions.

Basically they acquired too much debt during the boom financing speculation and the bubble burst...selling leads to more selling, asset prices plunge, currency appreciates because paying off the massive debt reduces the money supply...eventually debtors debt actually increases in real terms as they try to pay it off because of the currency appreciation.

That's an extremely general, detail-less explanation...but looking up the pdf I mentioned above should clear it all up.

Agree with everything that has been said here and would add the following. As debt loads cannot be served, asset prices fall as people sell things to serve thier debts. Businesses and people learn that things will be cheaper tomorrow, and start putting off purchases. This adds to the cycle of falling prices, and after a while the entire population's expectations are for falling prices to be the norm, so why buy something today when you can buy it for less tomorrow. It's a very difficult cycle to stop, as the BOJ has seen with 0% interest rates for years now.

http://en.wikipedia.org/wiki/Liquidity_trap

Thank you so much for your inputs guys. I find it interesting to see how extreme growth can be very dangerous if things are not handled correctly. Seems to me like some of the politicians in Japan didn't do well in macro at school

There are no easy solutions for deflation. I wonder how/when the Japanese will have inflation again.