Japan on the Upswing: Why the Bubble Burst and Japan's Economic Renewal

Japan on the Upswing: Why the Bubble Burst and Japan's Economic Renewal

Japan on the Upswing: Why the Bubble Burst and Japan's Economic Renewal

Japan on the Upswing: Why the Bubble Burst and Japan's Economic Renewal

Excerpt

The groundwork for the bubbling Japanese economy of the late 1980s was laid in 1987 by none other than the Bank of Japan, which lowered the prime rate to as low as 2.5% and kept it there for two years and three months until 1989. This made the economy chug along with steaming hot “bubbles.”

You will learn the reasons, in Part 1, as former Prime Minister Miyazawa explains. After the economy zoomed upward, that guardian of financial sanity called the Bank of Japan took a very anti-conservative step in raising the rate from 2.5% to 6% in a matter of 15 months. It was May 1990.

This was like calling out the Forestry Department to douse a small campfire — it was overkill, and the “bubble” broke in 1992. As if to give the coup de grace to a gasping patient, a measure called “Soryo Kisei” — the Total Amount Reduction — was introduced to squeeze the flow of money down to a trickle. It was also May 1990.

This could have been a commendable action, had it been applied gradually over some extended period of time to cushion any sudden impact on the economy. But the Bank of Japan did it with the single-mindedness of a samurai. The flow of funds was nearly halted, economic activity hit a wall, and the recession set in.

As the market turned feverish, then quickly cooled, Japanese banks and other financial institutions played a major role in creating the real estate bubble (the first alarm was issued by Prof. Y. Noguchi in the fall of 1987). They pushed their employees to get more deposits from their customers. The money thus collected was quickly turned over in real estate loans. As long as their customers had land, they were happy to provide loans on any piece of property put up as collateral, since land prices were soaring. They made money as the value of the collateral shot up. Many corporations and manufacturers climbed onto the band wagon for land buying before taxes bit into their huge profits.

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.