The Japanese housing bubble

Recovering from the World War Ⅱ, Japanese economy has made remarkable brilliant achievements. In the early 1980s, Japan only cost a few years to catch up with France, UK and Germany on economy, becoming the dominant power in Asia and second only to the United States in the world. However, at the same period, their best friend, the US, was facing the issues of the sharp increase in the budget deficit and the foreign trade deficit. In 1985, the US hoped to release these pressures by reducing the dollar exchange rate, and then the Plaza Accord has been signed.

After that, the exchange rate of dollar to yen from 1:250 to 1:120 between 1985 and 1987. The Plaza Accord seems to make a promise of certainly profit in Japan and leads to large amount of excess money and international capital inject to Japanese market (Monetary Policy and  The Plaza Accord). Meanwhile, with the rapid appreciation of yen, bubble increase rapidly and Japan falls in the wave of speculative activities, especially in the stock market and the real estate market. People all believe that the land will never be devalued and purchase land for resale, and banks take the real estate as a mortgage to make large number of loans to the debtor. Due to the dramatic increase of economy, the Japanese become the richest people in the world, and the price of total 23 areas in Tokyo even reaches a level of that can purchase all the American land.

With the rise in assets prices, Japan reached the peak of the bubble economy in 1989, most of the economic indicators stay at an unprecedented high level. As no more space to chase profit in such a high-price real estate market, speculators lose their desire and then bubble starts to burst. The Nikkei stock average drops from the highest 38915.87 point in December 1989 to less than 14000 points in August 1992. With the land price falls sharply, the loan secured by the real estate shows a great risk, which makes a disaster in financial institutions especially the banks.

The bubble burst leads to economic recession, enormous amount of bad debt in bank, numerous business failures and so on. With the high unemployment rate and suicides records at that time, Japanese were unprecedented panic to the future.

（Japan's economic bubble distant memory 20 years later）