A Liquidity Trap in Japan?

Because the nominal interest rate cannot become negative, the LM curve tends to flatten out at low interest rates. When the LM curve is flat, Keynesian theory with static expectations predicts that monetary expansion -- a rightward shift of the LM curve -- will not be successful in the stimulating the economy. Of course, there is more money in the economy, but monetary expansion stimulates the economy by encouraging more real consumption and investment through lower interest rates. 
In the late 1990s, a number of economists, Paul Krugman prominent among them, began to argue that Japan was stuck in a liquidity trap. Nonetheless, they argued, monetary expansion could be used to stimulate the economy if it were conducted appropriately. The readings below are two essays from Krugman. The first, dated August 1998, relates the story of a babysitting cooperative that found itself in a situation analogous to a liquidity trap; it's an insightful piece. The second, from March 1999, was written at a brief point in time when Krugman hoped that policies he had been pushing were finally being put in place by the Bank of Japan.
In order to fully relate the arguments to the formal model we have covered in class, recall the following:
Sustained monetary expansion will lead to higher inflation (the classical model as a long-run model).
This will raise expectations about the price level (see the components of the IS curve), and so drive down the expected real rate of interest).
An increase in the expected price level will shift the IS curve to the right.

Online Reading
The Babysitting Economy
Morning in Japan?