Which 1989 event caused Japan’s Nikkei 225 to begin its historic post-bubble collapse?

The bursting of Japan’s asset-price bubble caused the Nikkei 225 to begin its historic post-bubble collapse.

Japan’s stock and real-estate prices had surged during the second half of the 1980s. Easy credit, strong speculation, and optimistic expectations pushed valuations to extraordinary levels. The Nikkei 225 reached its peak on December 29, 1989, at 38,915.87. After that peak, prices began a prolonged decline as the bubble deflated.

The Bank of Japan had raised interest rates from 1989 onward, and tighter financial conditions helped weaken speculative demand. Falling land and share prices damaged bank balance sheets and corporate investment. The resulting period of slow growth and financial stress became known as Japan’s “lost decades,” although the timing and definition of those decades are debated.

The Plaza Accord is sometimes blamed as though it were the crash itself. That 1985 agreement contributed to the monetary and currency environment preceding the bubble, but it was not the event that started the market’s post-1989 collapse. The Nikkei’s 1989 peak is a separate fact from the bursting of the bubble.