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Japanese asset price bubble (バブル経済, baburu keizai?) was a time of
skyrocketing land and stock prices in the Japanese economy, lasting from 1986
to 1990. It is one of the most famous economic bubbles.
In the decades following World War II, Japan implemented stringent tariffs and
policies to encourage the people to save their income. With more money in
banks, loans and credit became more easy to obtain, and with Japan running
large trade surpluses, the yen was able to appreciate against foreign currencies.
This allowed Japanese companies to invest in capital resources much more
easily than their competitors, which made goods cheaper, which widened the
trade surplus further. And, with the yen appreciating, financial assets became
very lucrative.
Unfortunately, with so much money readily available for investment, speculation
was inevitable, particularly in the Tokyo Stock Exchange and the real estate
market. The rates for housing, stocks, and bonds rose so much that at one point
the government issued 100-year bonds. Additionally, banks granted increasingly
risky loans.
At the height of the bubble, "it was a matter of pride that the land around the
Imperial Palace in Tokyo was at one point worth more than California", the
Financial Times said. Japan regained a sense of national pride and
assertiveness as a result of its new power, which manifested itself in works such
as The Japan That Can Say No by Shintaro Ishihara and SONY founder Akio
Morita. Accounts also report of high-level executives eating gold-sprinkled food
and eating with gold chopsticks. Many outside Japan were alarmed by this
resurgence, leading to criticism from foreign observers. Michael Crichton, for
example, wrote Rising Sun at this time, which highlighted (some say unfairly)
problems with the growing Japanese economic power.
Prices were highest in Tokyo's Ginza district in 1989, with some fetching over
US$1.5 million per square meter ($139,000 per square foot), and only slightly
less in other areas of Tokyo. By 2004, prime "A" property in Tokyo's financial
districts were less than 1/100th of their peak, and Tokyo's residential homes
were 1/10th of their peak, but still managed to be listed as the most expensive
real estate in the world. Some US$20 trillion (1999 dollars) was wiped out with the
combined collapse of the real estate market and the Tokyo stock market.
With Japan's economy driven by its high rates of reinvestment, this crash hit
particularly hard. Investments were made increasingly out of the country, and
Japanese manufacturing firms lost much of their technological edge. As
Japanese products became less competitive overseas, the low consumption rate
began to bear on the economy, causing a deflationary spiral.
The easily obtainable credit that had helped create and engorge the real estate
bubble continued to be a problem for several years to come, and as late as
1997, banks were still making loans that had a low guarantee of being repaid.
Correcting the credit problem became even more difficult as the government
began to subsidize failing banks and businesses, creating many "zombie
businesses".
The time after the bubble's collapse (崩壊, hōkai?), which occurred gradually
rather than catastrophically, is known as the "lost decade" (失われた10年,
ushinawareta jūnen?) in Japan.
skyrocketing land and stock prices in the Japanese economy, lasting from 1986
to 1990. It is one of the most famous economic bubbles.
In the decades following World War II, Japan implemented stringent tariffs and
policies to encourage the people to save their income. With more money in
banks, loans and credit became more easy to obtain, and with Japan running
large trade surpluses, the yen was able to appreciate against foreign currencies.
This allowed Japanese companies to invest in capital resources much more
easily than their competitors, which made goods cheaper, which widened the
trade surplus further. And, with the yen appreciating, financial assets became
very lucrative.
Unfortunately, with so much money readily available for investment, speculation
was inevitable, particularly in the Tokyo Stock Exchange and the real estate
market. The rates for housing, stocks, and bonds rose so much that at one point
the government issued 100-year bonds. Additionally, banks granted increasingly
risky loans.
At the height of the bubble, "it was a matter of pride that the land around the
Imperial Palace in Tokyo was at one point worth more than California", the
Financial Times said. Japan regained a sense of national pride and
assertiveness as a result of its new power, which manifested itself in works such
as The Japan That Can Say No by Shintaro Ishihara and SONY founder Akio
Morita. Accounts also report of high-level executives eating gold-sprinkled food
and eating with gold chopsticks. Many outside Japan were alarmed by this
resurgence, leading to criticism from foreign observers. Michael Crichton, for
example, wrote Rising Sun at this time, which highlighted (some say unfairly)
problems with the growing Japanese economic power.
Prices were highest in Tokyo's Ginza district in 1989, with some fetching over
US$1.5 million per square meter ($139,000 per square foot), and only slightly
less in other areas of Tokyo. By 2004, prime "A" property in Tokyo's financial
districts were less than 1/100th of their peak, and Tokyo's residential homes
were 1/10th of their peak, but still managed to be listed as the most expensive
real estate in the world. Some US$20 trillion (1999 dollars) was wiped out with the
combined collapse of the real estate market and the Tokyo stock market.
With Japan's economy driven by its high rates of reinvestment, this crash hit
particularly hard. Investments were made increasingly out of the country, and
Japanese manufacturing firms lost much of their technological edge. As
Japanese products became less competitive overseas, the low consumption rate
began to bear on the economy, causing a deflationary spiral.
The easily obtainable credit that had helped create and engorge the real estate
bubble continued to be a problem for several years to come, and as late as
1997, banks were still making loans that had a low guarantee of being repaid.
Correcting the credit problem became even more difficult as the government
began to subsidize failing banks and businesses, creating many "zombie
businesses".
The time after the bubble's collapse (崩壊, hōkai?), which occurred gradually
rather than catastrophically, is known as the "lost decade" (失われた10年,
ushinawareta jūnen?) in Japan.