Japanese asset price bubble

The Japanese asset price bubble (バブル景気, baburu keiki^?, "bubble condition") was an economic bubble in Japan from 1986 to 1991 in which real estate and market prices were greatly inflated. In early 1992, this price bubble collapsed. 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 had been closely associated with excessive monetary easing policy at the time.

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, 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.

Early research has 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 the monetary policy, but decided to delay the decision in view of economic uncertainty related to Black Monday (October 19, 1987) in the US.

More recent research supports an alternate view, that BOJ reluctance to tighten the 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 appreciation of Japanese Yen”), which occurred from 1985—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.

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