The Bank of Japan's interest-rate increases helped burst Japan's late-1980s asset-price bubble before the 1990 market crash.
To restrain rapidly rising land and share prices, the Bank of Japan raised its official discount rate five times between May 1989 and August 1990, taking it from 2.5% to 6%. Tighter monetary policy made borrowing more expensive and reduced the flow of credit that had supported speculation.
Japanese equities began falling at the end of 1989, while land prices also declined afterward. The Nikkei 225 had reached its famous peak on December 29, 1989, but the broader economic consequences continued for years. Banks were left with bad loans, businesses cut investment, and Japan entered a prolonged period of weak growth.
The rate increases were an important factor, not the sole cause. Financial deregulation, excessive lending, speculative expectations, and earlier monetary conditions also contributed to the bubble and its collapse.