Episode 6: Frenzy and Mania! The Bubble Economy, Nikkei Fever, and the Aftermath 💸🎢 (Late 1980s - Early 1990s)
Last time, we discussed how monetary easing after the "Plaza Accord" led to an abundance of money in Japan, which started flowing into stocks and real estate, heralding a major economic shift.
This time, we finally dive into the era of the "Bubble Economy"! Japan was engulfed in a frenzy, and the Nikkei Stock Average reached astounding highs, but like all bubbles, it was destined to burst...
What was the "Bubble Economy"? (Approx. 1986 - 1991)
"Bubble" refers to something that inflates beyond its actual substance, like a soap bubble, only to pop! The Bubble Economy describes a period when stock and land prices in Japan inflated to abnormally high levels, far exceeding the actual strength of the economy.
Why did this "Bubble" form? 🤔
- Abundant Money💰: Monetary easing after the Plaza Accord made borrowing easy, flooding the economy with money.
- The "Land Myth"💴: A widespread belief that land prices, especially in Tokyo, would never fall.
- Speculative Fever🔥: Everyone rushed to buy stocks and land, believing they would keep profiting (this is called "speculation").
All of Japan in a Fever! 🎉 The Symphony of the Bubble
Dreams Eventually End... The Bubble Starts to Burst (1990~)
💥 Why Did the Bubble Burst? 💥
- The Bank of Japan Hits the Brakes! Concerned about the overheating economy, the Bank of Japan began raising interest rates incrementally from May 1989 (monetary tightening). This made borrowing money harder, dampening the fervor for stocks and land.
- Restrictions on Real Estate Loans! "Soryo Kisei": In 1990, the government issued a directive to banks called "Soryo Kisei" (total volume control), effectively restricting loans to real estate companies. This curbed land price increases.
Triggered by these policies, the overinflated bubble burst with a pop.
In 1990, the Nikkei Stock Average began to plummet. The once-feverish stock prices sometimes halved in less than a year. Land prices soon followed suit.
After the Bubble Burst... Into the "Lost Era" 🥶
The Japanese economy faced dire straits after the bubble burst.
- Stocks and Land Prices Plummeted: Prices crashed катастрофически.
- Banks in Crisis! "Bad Loans": Banks had lent vast sums during the bubble, believing land prices would keep rising. When prices fell, these loans became unrecoverable ("bad loans").
- Companies and Banks Collapsed: Many firms and banks saddled with bad loans went bankrupt, including major financial institutions like Hokkaido Takushoku Bank and Yamaichi Securities, shocking the nation (financial crisis).
- A Long Tunnel... The "Lost Decade (or more?)": The Japanese economy struggled to recover from the aftermath, enduring a prolonged period of stagnation known as the "Lost Decade," though some say it extended to a "Lost 20 Years" or even "Lost 30 Years."
How Were Global Stock Markets? The Impact of Black Monday?
In the midst of Japan's bubble, on October 19, 1987, a stock market crash known as "Black Monday" occurred in New York. This caused Japan's stock market to plummet by nearly 15% in a single day. However, Japan recovered relatively quickly from this shock and continued its ascent towards the bubble's peak.
While the Dow Jones Industrial Average also trended upwards in the late 1980s, the extreme nature of Japan's bubble and its severe, prolonged aftermath are largely considered unique to Japan.
It was an era of heaven and hell. The experience of the bubble economy left profound lessons for Japan's economy and society.
Now, how will the Japanese economy attempt to escape this long tunnel? On the next page, we'll look at the "Lost Era" after the bubble burst, and the faint light and shadow of the IT bubble that emerged within it.