Forging Ahead, Falling Behind
Chapter 5: ‘Losing a Decade’: Economic and Financial Hubris in Recessionary Japan, 1990–97
JOBNAME: Garside PAGE: 1 SESS: 7 OUTPUT: Wed Jun 27 12:09:56 2012 5. ‘Losing a decade’: economic and ﬁnancial hubris in recessionary Japan, 1990–97 The effects of the explosion of land and stock prices between 1985 and 1990 and their subsequent dramatic collapse in the 1990s – the bubble that gave way to the ‘lost decade’ – was unprecedented in post-war Japanese experience. In a dramatic reversal of fortune, the Nikkei 225 stock index, which had peaked at 38,915 yen at the end of 1989, fell to only 14,309 in August 1992. In September 1990 land prices had stood at four times their September 1985 level. They started their decline only in September 1991, following MOF guidelines limiting bank lending to the property sector (Figure 5.1 below). The slide in prices thereafter was unabated; at the end of 1997, the average price of land in the six largest Japanese cities was about 40 per cent of the peak seen in 1990. By 1999 land prices more generally had collapsed to 80 per cent of their peak level.1 By May 1989 both the MOF and the LDP had become alarmed by the bubble in asset prices and the overheating of the economy. Monetary policy was tightened sharply to halt the rise in land prices. The BOJ raised interest rates some 18 months before the stock market peaked; it continued to raise them for a year thereafter, possibly because land prices continued to rise after the stock market collapse.2...
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