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How the sun set on Japan’s asset bubble

Japan partied like it was 1999 in the 1980s, but the underlying weaknesses in its structure of corporate governance caused the mother of all asset price crashes.
How the sun set on Japan’s asset bubble
  • This month the Japanese Nikkei has hit 28,000 for the first time since 1990
  • A return to the country's asset bubble and subsequent crash provides an important lesson for today's equity investors

Welcome to Tokyo in 1989. Vast leveraged property deals, karaoke bars, $3m golf club memberships, thousands spent on individual bottles of Beaujolais Nouveau and an asset bubble that saw the average price for 1 square metre of Tokyo rocket to $300,000. With a host of trophy purchases in the US – at one point a Japanese real estate company bought the Rockefeller Centre in New York – it was thought that Japan was about to decisively overtake its western competitors.

Until it all went very, very wrong. The crash in Japanese asset prices represents one of the biggest destructions of shareholder capital in stock market history. From peak to trough, shareholders lost some $2tn of wealth in just a couple of years. The consequences for Japan were grievous. The fallout from the bust crushed consumer confidence and condemned the country to two decades of low growth and falling prices, causing savers to squirrel ever more money away in low-interest Post Office accounts. It also contributed materially to job insecurity, exacerbated an already punishing culture of long working hours for those lucky enough to be in regular work, and it is probably a factor in the huge intervening decline in Japan’s birth rate.

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