At the time, the Bank of Japan faced a situation broadly similar to that facing the Fed now. The economy was deeply depressed and showed few signs of improvement, and one might have expected the bank to take forceful action. But short-term interest rates — the usual tool of monetary policy — were near zero and could go no lower. And the Bank of Japan used that fact as an excuse to do no more.
That was malfeasance, declared the eminent U.S. economist: “Far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism.” He rebuked officials hiding “behind minor institutional or technical difficulties in order to avoid taking action.”
Who was that tough-talking economist? Ben Bernanke, now the chairman of the Federal Reserve. So why is the Bernanke Fed being just as passive now as the Bank of Japan was a decade ago?
Krugman has more - including a link to Bernanke's paper - in this blog post.
The Fed does seem to be overly-cautious, though its recent decision not to contract its balance sheet as planned is a baby step in the right direction. It could be worse: as new FT econ blogger Gavyn Davies explains, the Fed and Bank of England have been much more aggressive than the "hard currency mob" at the European Central Bank and (still) the Bank of Japan.