Japan’s asset-price bubble burst in 1990, beginning the period commonly called Japan’s Lost Decade.
During the late 1980s, Japanese property and stock prices rose dramatically. Easy credit, financial deregulation, and speculative expectations helped inflate values, while land in major cities became extraordinarily expensive. The Nikkei 225 reached its historic closing peak of 38,915.87 on December 29, 1989.
The Bank of Japan raised interest rates, and asset prices then collapsed. The Nikkei lost much of its value, property prices fell for years, and banks were left with large quantities of bad loans. Weak demand, corporate debt, and slow financial restructuring prolonged the stagnation through much of the 1990s.
“Lost Decade” originally referred mainly to the 1990s, although later usage sometimes includes the 2000s. The episode was not simply a stock-market crash: the collapse of commercial and residential land prices was equally important to Japan’s banking and economic problems.