Japanese asset price bubble
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- See also: Japanese post-war economic miracle
The Japanese asset price bubble (バブル景気 baburu keiki?, lit. "bubble economy") 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 history.
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 easier 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 making goods cheaper and widening 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 Nikkei stock index hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. 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, a commonly-quoted claim was that the land beneath the Imperial Palace in Tokyo was worth more than the entire state of California. 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. 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 US concerns 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,[citation needed] 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[citation needed].
With Japan's economy driven by its high rates of reinvestment, this crash hit particularly hard. Investments were increasingly directed out of the country, and Japanese manufacturing firms lost some degree 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 or end of the century" (失われた10年 ushinawareta jūnen?) in Japan. The Nikkei 225 stock index eventually bottomed out at 7603.76 in April 2003 before resuming an upward climb.
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