In 1945 Japan was a feudal monarchy that had suffered catastrophic defeat in World War II, but in fewer than 50 years this ruined nation would transform itself into a prosperous industrial democracy. Peasants became factory workers and the middle classes became white-collar workers – salary men – who were promised jobs for life in the mighty zaibatsu (banking and industrial conglomerates) that grew from the determined efforts of the hard-working Japanese people. As the economy boomed, zaibatsu morphed into even more powerful entities called keiretsu, alliances where big business and government worked together for the common good.
But the frugal Japanese saved rather than spent, ensuring that financial institutions were awash with investment capital – a fact leading inevitably to speculation. The keiretsu invested in each other’s shares, inflating values, and there was a massive real-estate boom. Banks also made increasingly risky loans as they put surplus capital to work, creating an overheating economy and an asset-price bubble that just couldn’t last.
Japan’s Nikkei share index hit an all-time high on December 29 1989, but that was as big as the bubble got. It didn’t exactly burst, but deflated rapidly through 1990 and into 1991.
The stock market dropped to half its peak level by August 1990 and continued to fall until hitting rock bottom in 2003. Land and property prices started a similar downward journey in 1991.
The long-term effect of the deflating Nikkei bubble on the Japanese economy was disastrous. Capital was redirected abroad. Manufacturers lost their competitive edge. Thrifty consumers further depressed the ailing economy as exports declined. An overhead indicator shows and – despite the fact that interest rates were reduced to zero – 160.03 yen at the Tokyo Stock there was a vicious deflationary spiral. Economic stagnation and Exchange on April 18 1990. Recession followed, unemployment rose and those valued ‘jobs for life’ inevitably started disappearing as the government ran enormous budget deficits.
When was the Nikkei Bubble: 1990
Where was the Nikkei Bubble: Japan
What was the Nikkei Bubble toll: With the puncturing of the Nikkei bubble, the Japanese economic miracle came to an abrupt end.
You should know: Despite a brief recovery after 2003, the Nikkei share index reached a 26-year low of 6,994 points during the global financial crisis of 2008. Way back in December 1989, at the height of the Nikkei bubble, it stood at a heady 38,915 points.