Japan’s stock index suffered a major crash after the country’s 1989 asset bubble burst, beginning a prolonged “Lost Decade.”
The Nikkei 225 reached its record closing high of 38,915.87 on December 29, 1989. It then fell sharply as Japan’s property and equity prices unwound. By the early 1990s, banks and companies were burdened with bad loans and weakened balance sheets, while economic growth slowed dramatically.
The bubble had been fueled by easy credit, rising land prices, and exuberant expectations. Tokyo land and Japanese equities became extraordinarily expensive relative to economic fundamentals. When monetary policy tightened and prices turned downward, the decline damaged financial institutions and reduced spending and investment.
“Lost Decade” usually describes Japan’s stagnation during the 1990s, though weakness extended into later years, so the phrase is not a precise ten-year measurement. The crash also involved both stocks and real estate; it was not simply a one-day share-market event.