Japanese asset price bubble

The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion.

[4] By August 1990, the Nikkei stock index had plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan (BOJ).

[6] Early research found that the rapid increase in Japanese asset prices was largely due to the delayed action by the BOJ to address the issue.

At the end of August 1987, the BOJ signaled the possibility of tightening monetary policy but decided to delay the decision in view of economic uncertainty related to Black Monday of 1987 in the United States.

[7] Later research argued an alternative view, that BOJ's reluctance to tighten monetary policy was in spite of the fact that the economy went into expansion in the second half of 1987.

[8] The term endaka fukyō would in the future be used repeatedly to describe the many times the yen surged and the economy went into recession, posing a conundrum for business and government, trade partners, and anti-monetary interventionists.

Economist Richard Werner says that external pressures such as the accord and the policy of Ministry of Finance to reduce the official discount rate are insufficient in explaining the actions taken by the Bank of Japan that led to the bubble.

In fact, in order to overcome the endaka recession and stimulate the local economy, an aggressive fiscal policy was adopted, mainly through the expansion of public investment.

[2][10] At this point the US urged the other countries to raise interest rates, fearing the effects of further depreciation of the dollar on the budget and current account deficit.

Despite leaving the official discount rate unchanged during the summer of 1987, the BOJ expressed concern over excessive monetary easing, particularly after the money supply and asset prices rose sharply.

[20] By the early 1980s, Tokyo was an important commercial city due to a high concentration of international financial corporations and interests.

As lending costs increased drastically, coupled with a major slowdown in land prices in Tokyo, the stock market began to fall sharply in early 1990.

[2] As a result, the funding of the corporate and household sectors rapidly increased from around 1988 and recorded a rate of growth close to 14 percent on a year-on-year basis in 1989.

[28][failed verification] Due to the appreciation in the yen, Japanese companies suffered from huge losses in exports, as they had to sell their products in the States at higher prices than before to make a profit.

[29][failed verification] To respond to this, the government shifted its focus on increasing demand within the country so that domestic products and services could still be consumed.

To summarize the effect of the Plaza Accord in the long run, it did not succeed in equalizing the trade imbalance between Japan and the United States.

As a result, in 1984, restriction on future exchange transactions was removed in Japan, and it became possible for not only banks but companies to be involved in currency trading.

It partly became the cause of the asset price bubble as financial liberalization increased investment in real estate by companies even before the new monetary policy took hold in 1986.

The accelerating growth in terms of Japanese asset prices is closely associated with a significant drop in short-term interest rates, notably between 1986 and 1987.

The movement of the BOJ to appreciate the Japanese yen rather than stabilizing the asset price inflation and overheating meant little could be done during the peak of the crisis.

[3] In fact, bank behaviour has gradually become aggressive since 1983 (even before the monetary easing policy in Japan) after the ban on fund-raising in the securities market was lifted around 1980.

[4] The Recruit scandal of 1988, whereby shares in a human resources firm were offered to politicians in return for favors, implicated the entire cabinet and revealed the close relationship between the government and the private sector.

[38] The asset price burst also badly affected consumer confidence since a sharp dip reduced household real income.

Since asset prices tumbled, increasing liabilities on a long-term basis projected a bad balance sheet to investors.

[38] Many Japanese corporations were facing huge difficulties to reduce the debt ratio – resulting reluctance from the private sector to increase investments.

[38] The government continued to provide support for failing banks and unprofitable businesses, making it impossible for more efficient firms to compete.

[41] Zombie companies reduce the profits for competitive firms, depress job creation, lower productivity and discourage investments.

[40] During the 1970s and 1980s, life-time employment schemes were widespread, but in a response to the recession that followed the bursting of the bubble, Japanese companies restructured their businesses, which included downsizing and outsourcing.

[38] Eventually, a carry trade developed in which money was borrowed from Japan, invested for returns elsewhere, and then the Japanese were paid back, with a nice profit for the trader.

Akira Toriyama started the storyline for Frieza during this time and got the inspiration from real-estate speculators, which he believed to be the worst sort of people.