Japan's Bubble Economy

Japan’s Bubble Economy

An asset bubble burst in Japan during the late 1980 till early 1990. Many problems were still affecting the Japanese today. It all starts with asset price skyrocket in Japan. During the 1980, stock price, and many others assets double it prices and some even tripled in just less than five years. The whole economy did not rise with the asset price and it causes many problems. In the early 1990 asset price deflate and many companies were affected. Companies were those largely affected by the burst of the asset bubble and individuals were less affected, but the fall of asset price cause a chain reaction turn down in Japan’s economy.

In September 22, 1985, government of the United States, France, West Germany, Japan, and United Kingdom meet at Plaza Hotel in New York (Okina). The five governments come to an agreement call Plaza Agreement. Governments agree to change the exchange rate of U.S. Dollar. The exchange value of dollar decline and Yen go up (Okina). Due to the Plaza Agreement, much U.S. money started to flow to Japan. During 1985 to 1988, the Yen exchange rate increase and this decrease the competitive strength of Japanese international company (Okina). The Japanese government created policies to help the export industries that were hurt by the inflation of Yen. Interest rate of loaning was reducing to policy that created (Okina). The lower of interest rate did not help the export businesses, but it trigger an investment boom in Japan. Investment toward stock and real estate were rapidly increasing due to the belief that land would not depreciate (Okina). As more land being trade the price of lands started to increase. At the highest point of the price, Tokyo’s land value can compare to the land value ...

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...nt acknowledge the collapsed of bubble economy in 1993. Many problems were not solved. The wholesale price in Japan is falling 4.2 percent every years and the Gross National Product decrease 2 percent every years (Watkins). Japan’s economy is still in trouble after the end of bubble economy. One of the major problem is the government did not try to fix the cause of problem. The government tries to quick fix the economy turn down (Watkins). It orders the public sector financial institutions to buy stock from stock market to raises price. The bank industry suffer heavy lose because people were unable to pay their loans (Watkins). Some bank cannot pay their employees with money; they have to pay them with unsold company inventory (Watkins). The Japanese government does not encourage companies to reduce their labors, but this put companies to financial risk (Watkins).