Real estate bubble of Japan

In order to deeply analyse the real estate bubbles, I will take Japan as an illustration. There is a famous economic bubble in Japan from 1986 to 1991. During that period, real estate and stock prices were seriously inflated. Real estate prices experienced a manic process that price in Tokyo is 350 times more expensive than comparable land in Manhattan and New York.

So what is the reason of this bubble? Firstly, we need to realize the background. After the second war, the government in Japan encouraged people save their income and then the yen appreciating. The financial assets become very expensive and luxurious.  Secondly, Capitalism allows marginal buying for speculation with self-risk-taking. Banks and government encouraged people to do this. What is more, Japanese used to believe a sort of myth that real estate value will never fall down because the limited land. At last, the most important point is that overconfidence and the Bank of Japan’s loose monetary policy in that period led to aggressive speculation in domestic stock and real estate, resulting in the prices of assets to the unprecedented level.

As a result, Japan’s property market in the 1980’s was very fragile. Because all the corporate speculation, the collapse wiped out company balance sheets. Therefore, the market fell hard. Through some related materials, since 1991, Japan has spent 11 years to struggle with the recession. It has meaningful signs until now.