Lessons for Today's Investors, Policymakers, and Anyone Who Believes That 'This Time Is Different'

In 1989, the Tokyo Stock Exchange witnessed a jubilant ceremony as traders celebrated the end of the year with applause, marking the culmination of an extraordinary era. Japan's stock market had soared to unprecedented heights, transforming the nation into a land of apparent wealth.

The 1980s bubble economy in Japan was a time of unbridled speculation and extravagance. Stock prices skyrocketed, reaching dizzying heights that seemed to defy all logic. Kazukuni Yamazaki, an investor who witnessed the frenzy firsthand, recalls the excitement that permeated the air. People from all walks of life flocked to stock exchanges, eagerly checking prices and indulging in dreams of unimaginable wealth.

The Nikkei share average, a benchmark for Japanese stocks, experienced a meteoric rise throughout the decade. It began 1980 at 6,867 and ended 1989 at 38,915, marking a staggering increase of over 400%. This unprecedented growth attracted speculators from around the world, fueling the bubble's expansion.

The euphoria extended beyond the stock market. Land values in Tokyo soared to astronomical levels, with a single square meter in the prestigious Ginza shopping district fetching an astonishing 32 million yen. The capital gains from stocks and land alone surpassed 40% of Japan's annual GDP in 1987.

However, the bubble's foundation was built on a mountain of debt, particularly in the real estate sector. When prices crashed, this debt transformed into bad loans, crippling the financial system and contributing to a prolonged economic downturn.