The Japanese Asset Bubble

1989–1991 CE — East Asia, Japan

Today: Tokyo, Japan

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.

Worth knowing: Japanese banks kept lending to firms that could never repay, because writing off the loans would have exposed the banks' own insolvency. Economists coined a term for the walking-dead borrowers that resulted, and it stuck: zombie companies.

Pattern: Mania & panic — A speculative belief detaches asset prices from fundamentals; the belief breaks and prices collapse.

Entry 232 of 240 in Precedent, a walk through the whole human story in order.