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The economic miracle ended abruptly at the very start
of the 1990s. In the late 1980s, abnormalities within the Japanese economic
system had fuelled a massive wave of speculation by Japanese companies,
banks and securities companies. Briefly, a combination of incredibly high
land values and incredibly low interest rates led to a position in which
credit was both easily available and extremely cheap. This led to massive
borrowing, the proceeds of which were invested mostly in domestic and
foreign stocks and securities.
Recognizing that this bubble was unsustainable (resting, as it did, on
unrealizable land values - the loans were ultimately secured on land
holdings), the Finance Ministry sharply raised interest rates. This popped
the bubble in spectacular fashion, leading to a massive crash in the stock
market. It also led to a debt crisis; a large proportion of the huge debts
that had been run up turned bad, which in turn led to a crisis in the
banking sector, with many banks having to be bailed out by the government.
Eventually, many become unsustainable, and a wave of consolidation took
place (there are now only four national banks in Japan). Critically for the
long-term economic situation, it meant many Japanese firms were lumbered
with massive debts, affecting their ability for capital investment. It also
meant credit became very difficult to obtain, due to the beleaguered
situation of the banks; even now the official interest rate is at 0% and
have been for several years, and despite this credit is still difficult to
obtain.
Overall, this has led to the phenomenon known as the "lost decade";
economic expansion came to a total halt in Japan during the 1990s. The
impact on everyday life has been rather muted, however. Unemployment runs
reasonably high, but not at crisis levels (the official figure is a little
under 5%, but this is a considerable underestimate - the real level is
probably around twice that). This has combined with the traditional Japanese
emphasis on frugality and saving (saving money is a cultural habit in Japan)
to produce a quite limited impact on the average Japanese family, which
continues much as it did in the period of the miracle.
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