What speculative bubble’s collapse drove Japan’s stock-market crash after the Nikkei 225 peaked in 1989?

The Japanese asset price bubble was the speculative bubble whose collapse drove Japan’s stock-market crash after the Nikkei 225 peaked in 1989.

Japan experienced extraordinary rises in land and equity prices during the second half of the 1980s. Easy credit, strong optimism, financial deregulation, and speculation pushed valuations far above levels supported by ordinary economic fundamentals. The Imperial Palace grounds in Tokyo were famously compared with large areas of valuable real estate, although such comparisons were illustrative rather than precise measures of national wealth.

The Nikkei 225 reached its record closing level of 38,915.87 on December 29, 1989. It then fell sharply during the early 1990s as the Bank of Japan tightened policy and asset prices reversed.

The collapse helped begin Japan’s prolonged economic stagnation, often called the Lost Decades. The stock-market decline was part of a wider asset-price bust that also affected commercial land and property.