Japan's Economy
The 1980s Bubble
How cheap money, the Plaza Accord and speculation drove Japanese stock and land prices to extraordinary heights in the late 1980s, and how it burst.
In the late 1980s, Japan experienced one of history’s biggest asset bubbles.
The Plaza Accord
In 1985, the Plaza Accord among major economies pushed the yen sharply higher. To support the economy, the Bank of Japan cut interest rates.
The bubble
- Cheap credit flowed into stocks and property.
- The Nikkei stock index peaked near 39,000 in December 1989.
- Land prices soared; a famous claim held that the land under Tokyo’s Imperial Palace was worth more than all of California.
Why it grew
- Easy money.
- Banks lending against rising land values.
- Belief that land prices never fall.
The burst
The Bank of Japan raised rates from 1989. Stocks crashed in 1990, and land prices fell for over a decade.
Aftermath
Banks were left with huge bad loans, leading to the slow growth of the 1990s. The Nikkei took until 2024 to surpass its 1989 peak.
A company borrows against land worth 10 billion yen in 1989. By 1995, the land is worth half as much, and the loan exceeds the land's value.
Japan's stock market took about 34 years to regain its 1989 peak.
- The 1985 Plaza Accord raised the yen, and rates were cut.
- Cheap credit drove a stock and land bubble.
- The Nikkei peaked in December 1989 and crashed in 1990.
- Bad loans slowed Japan for years.
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