The Japanese Asset Bubble

Cheap credit and the conviction that Japanese land could not fall in price drove Tokyo property and the Nikkei to levels that made the arithmetic absurd — the grounds of the Imperial Palace were said to be worth more than the state of California. Banks lent against land, whose value was justified by what banks would lend. When the central bank raised rates, both collapsed. The Nikkei took thirty-four years to regain its 1989 peak. Japan spent the following decades with zombie banks, deflation, and stagnation, and the episode became the reference case for every central banker afterward.