Community hub
Recent from talks
Knowledge base stats:
Talk channels stats:
Members stats:
Japanese asset price bubble
The Japanese asset price bubble (バブル景気, baburu keiki; lit. 'bubble economy') was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and the country's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time. Through the creation of economic policies that cultivated the marketability of assets, eased the access to credit, and encouraged speculation, the Japanese government started a prolonged and exacerbated Japanese asset price bubble.
By August 1990, the Nikkei stock index had plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan (BOJ). By late 1991, other asset prices began to fall. Even though asset prices had visibly collapsed by early 1992, the economy's decline continued for more than a decade. This decline resulted in a huge accumulation of non-performing assets loans (NPL), causing difficulties for many financial institutions. The bursting of the Japanese asset price bubble contributed to what many call the Lost Decade. Japan's average nationwide land prices finally began to increase year-over-year in 2018, with a 0.1% rise over 2017 price levels.
Early research found that the rapid increase in Japanese asset prices was largely due to the delayed action by the BOJ to address the issue. At the end of August 1987, the BOJ signaled the possibility of tightening monetary policy[how?] but decided to delay the decision in view of economic uncertainty related to Black Monday of 1987 in the United States.
Later research argued an alternative view: that the BOJ's reluctance to tighten monetary policy was in spite of the fact that the economy went into expansion in the second half of 1987. The Japanese economy had just recovered from the endaka recession (日本の円高不況, Nihon no endakafukyō; lit. "recession caused by the appreciation of Japanese Yen"), which occurred from 1985 to 1986. The endaka recession has been closely linked to the Plaza Accord of September 1985, which led to the strong appreciation of the Japanese yen. The term endaka fukyō would in the future be used repeatedly to describe the many times the yen surged and the economy went into recession, posing a conundrum for business and government, trade partners, and anti-monetary interventionists. Economist Richard Werner says that external pressures—such as the Plaza Accord and the policy of the Ministry of Finance to reduce the official discount rate—are insufficient to explain the actions taken by the Bank of Japan that led to the bubble.
The strong appreciation of the yen eroded the Japanese economy, which was led by exports and capital investment for export purposes. In fact, in order to overcome the endaka recession and stimulate the local economy, an aggressive fiscal policy was adopted, mainly through the expansion of public investment. Simultaneously, the BOJ declared that curbing the yen's appreciation was a national priority. To prevent the yen from appreciating further, monetary policymakers pursued aggressive monetary easing and slashed the official discount rate to as low as 2.5% by February 1987.
The move initially failed to curb further appreciation of the yen, which rose from 200.05 ¥/U$ (first round of monetary easing) to 128.25 ¥/U$ (end of 1987). The course only reversed by the spring of 1988, when the US dollar began to strengthen against the yen. Some researchers have pointed out that "with exception of the first discount rate cut, the subsequent four are heavily influenced by the US: [the] second and the third cut was a joint announcement to cut the discount rate while the fourth and fifth was due to [a] joint statement [of] either Japan-US or the G-7". At this point the US urged the other countries to raise interest rates, fearing the effects of further depreciation of the dollar on the budget and current account deficit. Almost all discount rate cuts announced by the BOJ explicitly expressed the need to stabilize the foreign exchange rate, rather than to stabilize the domestic economy.
Later, BOJ hinted at the possibility of tightening the policy due to inflationary pressures within the domestic economy. Despite leaving the official discount rate unchanged during the summer of 1987, the BOJ expressed concern over excessive monetary easing, particularly after the money supply and asset prices rose sharply. Nonetheless, Black Monday in the US triggered a delay for the BOJ to switch to a monetary tightening policy. The BOJ officially increased the discount rate on March 31, 1989.
The table below demonstrates the monthly average of the U.S. dollar/Yen spot rate (Yen per USD) at 17:00 JST.
Hub AI
Japanese asset price bubble AI simulator
(@Japanese asset price bubble_simulator)
Japanese asset price bubble
The Japanese asset price bubble (バブル景気, baburu keiki; lit. 'bubble economy') was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and the country's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time. Through the creation of economic policies that cultivated the marketability of assets, eased the access to credit, and encouraged speculation, the Japanese government started a prolonged and exacerbated Japanese asset price bubble.
By August 1990, the Nikkei stock index had plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan (BOJ). By late 1991, other asset prices began to fall. Even though asset prices had visibly collapsed by early 1992, the economy's decline continued for more than a decade. This decline resulted in a huge accumulation of non-performing assets loans (NPL), causing difficulties for many financial institutions. The bursting of the Japanese asset price bubble contributed to what many call the Lost Decade. Japan's average nationwide land prices finally began to increase year-over-year in 2018, with a 0.1% rise over 2017 price levels.
Early research found that the rapid increase in Japanese asset prices was largely due to the delayed action by the BOJ to address the issue. At the end of August 1987, the BOJ signaled the possibility of tightening monetary policy[how?] but decided to delay the decision in view of economic uncertainty related to Black Monday of 1987 in the United States.
Later research argued an alternative view: that the BOJ's reluctance to tighten monetary policy was in spite of the fact that the economy went into expansion in the second half of 1987. The Japanese economy had just recovered from the endaka recession (日本の円高不況, Nihon no endakafukyō; lit. "recession caused by the appreciation of Japanese Yen"), which occurred from 1985 to 1986. The endaka recession has been closely linked to the Plaza Accord of September 1985, which led to the strong appreciation of the Japanese yen. The term endaka fukyō would in the future be used repeatedly to describe the many times the yen surged and the economy went into recession, posing a conundrum for business and government, trade partners, and anti-monetary interventionists. Economist Richard Werner says that external pressures—such as the Plaza Accord and the policy of the Ministry of Finance to reduce the official discount rate—are insufficient to explain the actions taken by the Bank of Japan that led to the bubble.
The strong appreciation of the yen eroded the Japanese economy, which was led by exports and capital investment for export purposes. In fact, in order to overcome the endaka recession and stimulate the local economy, an aggressive fiscal policy was adopted, mainly through the expansion of public investment. Simultaneously, the BOJ declared that curbing the yen's appreciation was a national priority. To prevent the yen from appreciating further, monetary policymakers pursued aggressive monetary easing and slashed the official discount rate to as low as 2.5% by February 1987.
The move initially failed to curb further appreciation of the yen, which rose from 200.05 ¥/U$ (first round of monetary easing) to 128.25 ¥/U$ (end of 1987). The course only reversed by the spring of 1988, when the US dollar began to strengthen against the yen. Some researchers have pointed out that "with exception of the first discount rate cut, the subsequent four are heavily influenced by the US: [the] second and the third cut was a joint announcement to cut the discount rate while the fourth and fifth was due to [a] joint statement [of] either Japan-US or the G-7". At this point the US urged the other countries to raise interest rates, fearing the effects of further depreciation of the dollar on the budget and current account deficit. Almost all discount rate cuts announced by the BOJ explicitly expressed the need to stabilize the foreign exchange rate, rather than to stabilize the domestic economy.
Later, BOJ hinted at the possibility of tightening the policy due to inflationary pressures within the domestic economy. Despite leaving the official discount rate unchanged during the summer of 1987, the BOJ expressed concern over excessive monetary easing, particularly after the money supply and asset prices rose sharply. Nonetheless, Black Monday in the US triggered a delay for the BOJ to switch to a monetary tightening policy. The BOJ officially increased the discount rate on March 31, 1989.
The table below demonstrates the monthly average of the U.S. dollar/Yen spot rate (Yen per USD) at 17:00 JST.