The explosion of the Japanese bubble together with the fall of the Berlin Wall and the Soviet Union completely changed how the world is conceived. Japan is not a threat again, but its stagnant economy and aging population mean that its role in the world is in decline in the face of the rise of other Asian giants such as China, Vietnam, Indonesia or India.
We have seen how after World War II Japan recovers its economy and begins to quickly return to the field of play, only this time more in trade and in the manufacture of high-tech products that defied European and American high-tech. The square and Louvre deals should have held Japan back, but what they did was a bubble of epic conditions. The バ ブ ル 景 気 (baburu keiki) or bubble economy had ended. How did it explode?
In 1989, the Bank of Japan began to raise interest rates little by little, with the aim of stopping the bubble, reaching 6%. The flow of credit is immediately cut off. The bubble burst in 1990 leaving an economic crisis from which Japan is still recovering. That year the stock market fell 32%. It was in 1993 that the Japanese prime minister acknowledged that the bubble economy had ended. There is talk of the lost decade, but in reality we should talk about decades and consider that the bursting of the bubble continues to resonate in the Japanese economy today.
As an example of the evolution of japan in popular culture, we can put events from Back to the Future trilogy. The 1955 Doc Brown laughs at a chip “made in Japan”, to which the 1985 Marty McFly says “what do you say Doc? All the best is made in Japan. “ In 2015 Marty McFly is fired by a Japanese boss. In reality we know that this was not the case, in the 2000s it was rumored that Japanese companies preferred Western CEOs because they had less scruples when it came to firing, for example Carlos Ghosn (French, Lebanese and Brazilian) at Nissan between 1999 and 2018 and Howard Stringer (Welsh) at Sony between 1999 and 2013. Today Ghosn has said that Japanese companies will not be able to attract managers from other countries.
Bankrupt banks, the rich who stop being rich and the Japanese who lose their jobs
The one cited in the second part Industrial Bank of Japan, like the Long-Term Capital Bank, had in 1990 each between three and four billion dollars in loans “underwater”, that is, they were not being repaid. With the collapse of the Tokyo Stock Exchange They were unable to raise capital (borrowed or in shares) and had to liquidate their assets abroad, almost all at a loss. In addition, Japanese banks eventually consolidated into larger banks, yet they still suffered losses for practically the next ten years as bad loans surfaced. Between 1990 and 2000 thousands of companies went bankrupt.
Obviously the burst of the bubble affected the economy, five million people lost their jobs and many once successful salaryman (employees of large Japanese companies with higher or lower level in the same) were forced to work in places such as convenience stores 24 hours (kombini) or taxi driver. Suicide became the most common cause of death for men ages 20 to 44. As consumption decreased, companies became overproduced. Hence come the years of deflation that Japan has suffered and the growth of unemployment, which was around 2% in 1989, in 2000 it had exceeded 5%.
When the Japanese stock market fell in 1990, only Kyowa Bank was able to hold onto the 8% capital required by the Bank for International Settlements in Basel (BIS) 8% without issuing junk bonds. In 1990 they were able to issue them, and they got two trillion yen, but it is believed that this could have further reduced the prices of the Japanese stock market. Japanese banks were also affected by the drop in property prices and business bankruptcies, they had 22% of the mortgage loans and 75% of the loans to SMEs in 1990. In 1991 the Japanese banks only had reserves of three trillion yen for loans for 450 trillion. The profit of the big four banks (Nomura, Daiwa, Nikko (Mitsubishi) and Yamaichi) fell 60% in 1991.
Banks were not the only ones who had to sell assets abroad, the Hotel Bel-Air we talked about earlier was sold in 1995 for 50 million dollars, half of what the Japanese hotel company had paid just five years earlier.
This economic explosion also affected the rich, the aforementioned Yoshiaki Tsutsumi went from being the richest man in the world to having a negative heritage due to the bank loans he had requested to expand the railways he had inherited. In 2005, he was arrested for violating Japanese stock market laws. (use of confidential information and falsification of data). He dropped off the world’s richest list in 2007, no longer rich enough to rub shoulders with this elite. Recently orAnother Japanese millionaire lost a lot of money from one day to the next, so perhaps it is something characteristic of the Japanese economy.
The public sector was also affected in its income, something that continues to this day. In 1991, the Japanese state had a surplus of 2.4% and its debt was below 60% of GDP. In 1998 the deficit was 10%, increasing public debt due to successive stimulus packages. Today Japan’s public debt exceeds 240% of its GDP, being one of the most indebted states in the world. Interest rates fell to 0.1%.
According to account Richard Werner Professor at DeMonfort University in his book “Princes of the Yen” and later in the homonymous documentary, the Bank of Japan played an important role in the measures that created the Japanese bubble and in those that prevented a speedy recovery of the Japanese economy, because they tried to force a reform of the structures of the economy of Japan. However, I believe that the Bank of Japan cannot be blamed exclusively for the bubble and the lack of recovery in subsequent years even accepting Werner’s thesis, especially when he has published articles that indicate the lack of importance of the price of money in other markets (Werner believes more in the amount of credit offered.)
Although Japan’s economy has its positive points, it is true that today it is a country with serious problems. Many of them inherited from the Japanese bubble between 1985 and 1990 and the subsequent huge debt. This makes it clear to us that If, on the one hand, bubbles can appear at any time and place, financial bubbles themselves are not as bad as the consequences they can have on the population. The same thing we saw with the housing bubble of the first decade of the 20th century.
Ask the readers What bubbles do you think there are at the moment?
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This is the third part of a series of three articles on the Japanese bubble of the 80s. The other parts have been:
Part III: The Post-Bubble Japanese Economy: Tragedy and Ruin in the Nation that Was to Rule the World
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