Japan’s 1989 market collapse followed the bursting of the asset-price bubble centered on the Nikkei stock index.
The Nikkei 225 reached its record closing level of 38,915.87 on December 29, 1989. During the late 1980s, Japanese share and land prices rose rapidly amid easy credit, strong optimism, and financial speculation. The Bank of Japan then tightened monetary policy, helping puncture the bubble.
Stock prices fell sharply after the peak, while real-estate values also declined for years. Banks carried large amounts of impaired lending, and companies and households reduced borrowing and spending. The resulting period of weak growth and financial stress became associated with Japan’s “lost decade,” although the economic effects extended beyond a single ten-year period.
The question concerns the country where the bubble formed, not a foreign market that was affected by the later global consequences. Japan’s crash is also distinct from the 1987 worldwide stock-market crash, which occurred two years earlier.