Questions about Japanese asset price bubble
Short answers, pulled from the story.
What caused the Japanese asset price bubble from 1986 to 1991?
The Japanese asset price bubble was caused by a combination of aggressive monetary easing, the Plaza Accord of 1985 which forced yen appreciation and prompted interest rate cuts, financial deregulation that opened the banking system to real estate lending, distortions in the tax system that encouraged speculation, and a Bank of Japan that held the official discount rate at 2.5% from February 1987 to May 1989 despite mounting asset inflation.
How high did Nikkei 225 stock prices get during the Japanese asset bubble?
The Nikkei 225 reached an all-time high of 38,957.44 on the 29th of December 1989, before closing at 38,915.87 that day. This represented a gain of more than 224% since the 2nd of January 1985. The index then fell to a post-bubble low of 7,862 by the 11th of March 2003.
How much did Tokyo land prices rise during the Japanese asset price bubble?
Commercial land in Tokyo rose 122% in a single year between 1985 and 1986, reaching 4,211,000 yen per square meter. By 1989, land in the Ginza district peaked at 30,000,000 yen per square meter. In the six major cities most affected, commercial land prices rose 302.9% compared to 1985 by the time the bubble peaked in 1991.
What is Japan's Lost Decade and how is it connected to the asset price bubble?
The Lost Decade refers to the period of economic stagnation in Japan following the collapse of the asset price bubble in the early 1990s. The bubble's bursting caused a prolonged decline in land and stock prices, a collapse in consumer confidence, a surge in non-performing bank loans, and corporate balance sheet deterioration. The Lost Decade eventually extended into two decades, with Japanese GDP in 2017 only 2.6% higher than it had been in 1997, an annualized growth rate of just 0.13%.
What was the Plaza Accord and how did it contribute to the Japanese bubble?
The Plaza Accord was signed in September 1985 by Japan, the United States, the United Kingdom, France, and West Germany to reduce global trade imbalances by appreciating the yen against the dollar. The yen rose from 238 yen per dollar in 1985 to 128.25 by December 1987, damaging Japan's export-led economy. To counter the resulting recession, the Bank of Japan slashed the official discount rate to 2.5% by February 1987, flooding the economy with cheap credit that fueled asset speculation.
What financial institutions collapsed after the Japanese asset bubble burst?
Sanyo Securities, Hokkaido Takushoku Bank, and Yamaichi Securities all collapsed in November 1997. The Long-Term Credit Bank of Japan failed in October 1998, followed by Nippon Credit Bank in December 1998. To address the banking crisis, the Japanese government injected 9.3 trillion yen in public funds into major banks in March 1998 and March 1999.