Japanese Asset Price Bubble

The Japanese asset price bubble was an economic bubble from 1986 to 1991 in which real estate and stock market prices in Japan became greatly inflated, encouraged by the Bank of Japan's low discount rate following the 1985 Plaza Accord's yen appreciation, financial deregulation that loosened restrictions on capital transactions, and a tax and land-lease system that rewarded holding property for capital gains rather than productive use. The Nikkei 225 stock index peaked near 38,957 points in December 1989 before beginning a collapse that, combined with falling land prices, left Japanese banks holding enormous volumes of non-performing loans and triggered a wave of major financial institution failures in 1997 and 1998. The resulting stagnation and deflation became known as Japan's Lost Decade, later extended by economists to a lost twenty years as GDP growth remained anemic into the twenty-first century. Economists still debate how much responsibility belongs to the Bank of Japan's delayed tightening as opposed to its prioritizing exchange rate stability over domestic conditions.