Japan’s asset-price bubble burst in the early 1990s, beginning the country’s “lost decades” of economic stagnation.
During the late 1980s, Japanese share and land prices rose dramatically. Easy credit, financial deregulation, optimistic expectations, and aggressive lending helped inflate valuations. The Nikkei 225 reached its record closing level of 38,915.87 on December 29, 1989.
The bubble then deflated. The Nikkei fell sharply through the early 1990s, while land prices also declined. Banks were left with large volumes of bad loans, and companies and households reduced borrowing and spending. Japan experienced weak growth, deflationary pressure, and repeated banking problems over the following years.
“Lost decades” is a popular description rather than a single officially defined period, and economists debate its exact boundaries and causes. The Japanese crash is also different from the 1997 Asian financial crisis: Japan’s bubble was centered on domestic equities and real estate, while the later regional crisis involved currencies, foreign debt, and several Asian economies.