Japan History : The 1990s (the "lost decade")

The 1990's

The economic miracle ended abruptly at the very start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fueled a massive wave of speculation by Japanese companies, banks and securities companies. Briefly, a combination of incredibly high land values and incredibly low interest rates led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and securities. Recognising that this bubble was unsustainable (resting, as it did, on unrealisable land values—the loans were ultimately secured on land holdings) the Ministry of Finance sharply raised interest rates.

This "popped the bubble" in spectacular fashion, leading to a major crash in the stock market. It also led to a debt crisis; a large proportion of the huge debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks having to be bailed out by the government. Eventually, many became unsustainable, and a wave of consolidation took place (there are now only four national banks in Japan).

Critically for the long-term economic situation, it meant many Japanese firms were lumbered with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and has been for several years. Despite this credit is still difficult to obtain.

Overall, this has led to the phenomenon known as the "lost decade"; economic expansion effectively came to a total halt in Japan during the 1990s. The effect on everyday life has been rather muted, however.

Unemployment runs reasonably high, but not at crisis levels. The official figure is a little under 5%, but this is a considerable underestimate — the real level is probably around twice that.

This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited effect on the average Japanese family, which continues much as it did in the period of the miracle.

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Japan History - The 1990s (the "lost decade")