Episode 7: The Long Tunnel... The "Lost Decades" and the Glimmer of the IT Bubble (1990s - Early 2000s)
Last time, we talked about how the "Bubble Economy," which had all of Japan in a frenzy, burst spectacularly. The Nikkei Stock Average plummeted from its all-time high... The Japanese economy, as if waking from a grand dream, faced a harsh reality.
This time, we'll look at the long, painful period of economic stagnation Japan experienced after the bubble burst, known as the "Lost Decade" (or perhaps even longer...), and a fleeting ray of hope that appeared in that dark tunnel: the "IT Bubble."
No End in Sight... What Were the "Lost Decades"? (1990s)
After the bubble burst, Japan's economy remained sluggish for a long time, as if in a deep sleep. Experts called this period the "Lost Decade," but it was actually a severe recession that lasted so long it's sometimes referred to as the "Lost 20 Years" or even "Lost 30 Years."
The Nikkei Stock Average, after its sharp fall post-bubble, continued to move sluggishly at low levels throughout the 1990s.
A Small Light in the Tunnel? The IT Bubble Arrives! (Late 1990s - Circa 2000) 💡
💻 The Internet Age Arrives! 📱
Despite the gloomy news in the late 1990s, new technology was spreading rapidly worldwide: the "Internet"!
The release of "Windows 95" in 1995 was a major catalyst for the spread of PCs and the internet into ordinary homes. People could send emails, browse websites, and access information from around the globe. Mobile phones also became smaller, and services like email (e.g., i-mode) became available around this time.
In the U.S., everyone focused on the potential of the internet, and new IT-related companies (called "dot-com companies") sprang up one after another, their stock prices skyrocketing. This was the beginning of the "IT Bubble (Dot-com Bubble)."
This wave, of course, reached Japan too! "The internet will change the world!" "New industries will be born!" IT-related company stocks became incredibly popular in Japan as well. For example, the stock prices of companies like SoftBank, Hikari Tsushin, and Yahoo! Japan (now LINE Yahoo) soared manifold in a short period.
Thanks to this IT boom, the long-slumping Nikkei Stock Average temporarily recovered to over 20,000 yen in the spring of 2000. It was like a brief, bright light shining in a dark tunnel.
It Was a Bubble After All... The IT Bubble Bursts (Circa 2000 - 2001) 💥
However, this IT boom was, indeed, another "bubble." Expectations for "the amazing internet" were so high that the stock prices of many companies had risen far beyond their actual strength or profitability.
In 2000, IT-related stocks plummeted on the Nasdaq market in the U.S., where many IT companies were listed. The impact quickly spread to Japan, and the once-popular Japanese IT stocks also saw their prices drop sharply. The Nikkei Stock Average, which had just recovered to the 20,000 yen level, fell significantly again.
However, because Japan was already in a prolonged post-bubble recession, IT-related investment hadn't overheated as much as in the U.S. Therefore, the damage from the IT bubble's collapse was said to be more limited in Japan compared to the U.S.
The "Lost Era" Continues...
With the fleeting dream of the IT bubble over, the Japanese economy was pulled back to harsh reality. The "Lost Decade" would eventually come to be known as the "Lost 20 Years"...
It's a truly long tunnel. But every tunnel, no matter how long, must have an exit.
Next time, we'll see how a major global financial crisis, the "Lehman Shock," affected the Japanese economy and the Nikkei Stock Average during this long period of stagnation.