Learn › Economic history › Japan's Lost Decade — 1989 to 2006

Japan's Lost Decade — 1989 to 2006

Falling Land Prices and Japan's Bad Loans

Explain how falling share and land prices after 1990 left Japan's banks with bad loans and less capital, and what the public money for the jusen in 1995-96 meant for later help for the banks.

Before you start

What you'll be able to answer

  1. How far did Japan's share and land prices fall after their peaks?
  2. How did the falls leave Japan's banks with bad loans and less capital, the money that absorbs their losses?
  3. What was the jusen settlement, and what did it mean for later help for the banks?

Where this sits

Japan's Lost Decade — 1989 to 2006 · this module is lit

  1. Dec 1989Share prices in Japan peak
  2. Aug 1990The Bank of Japan's last rise in its discount rate, the interest rate at which it lent to banks
  3. Aug 1992The government announces the first of six spending packages up to 1995
  4. 1995-96The first direct use of taxpayers' money against financial instability covers losses at failed housing-loan companies, the jusen
  5. 1 Apr 1997The consumption tax rate, a tax on what people buy, is raised
  6. Nov 1997Sanyo Securities, Hokkaido Takushoku Bank and Yamaichi Securities fail
  7. Oct-Dec 1998Japan's parliament, the Diet, makes more public money available to deal with banks' bad loans, and the state takes over the Long-Term Credit Bank and Nippon Credit Bank
  8. Feb 1999The Bank of Japan begins its zero interest rate policy, pushing its overnight rate as low as possible
  9. Mar 1999Public capital, new capital paid for by the state, is put into the major banks
  10. Mar 2001The Bank of Japan begins quantitative easing, a target for the money banks keep in their accounts with it
  11. Oct 2002The Financial Services Agency, the banking regulator, launches its programme to cut bad loans
  12. Mar 2006The Bank of Japan ends quantitative easing

Japan's banks at the end of 1989, with share prices at their peak

In December 1989 Japanese share prices stood at their peak, and land prices in the big cities were still rising. How they rose so far is told in the series Japan's Asset Bubble. Japan's banks had made many loans to firms with land as security, and they owned shares in many other companies. Over the next decade and more both share and land prices fell, and the banks were left with loans that would not be repaid.

Predict first

An index is a number that tracks prices against a base level. On an index of Japanese share prices kept by the International Monetary Fund (IMF), how much of their December 1989 value had shares lost by April 2003, when they hit a low?

Share prices lost almost three-quarters of their value by 2003

The chart shows the IMF's index of Japanese share prices, as an average for each month; on this index the average for 2010 is 100. The index stood at 322.9 in December 1989, its highest point, and fell through 1990. In April 2003 it reached 89.4, its lowest level in the IMF's figures for 1990 to 2007: a fall of 72 per cent from the peak.

Japanese share prices, December 1989 to April 2003IMF index of share prices, average for each month; 2010 = 100
501001502002503003501989199319951997199920012003Peak, Dec 1989Feb 2000Low, Apr 2003

Source: International Monetary Fund, Monetary and Financial Statistics: Financial Market Prices, Japan, equities, period-average index. IMF data, used with credit.

Land for shops and offices lost most of its value by 1999

Land prices turned later than share prices and kept falling through the 1990s. By 1999 the price of land for shops and offices in the six major cities was about 80 per cent below its peak of September 1990, on the Japan Real Estate Institute's index, as Bank of Japan economists report it.

Put shares and land together and the losses are larger still. A capital loss is a fall in the value of something owned. On the count of the Cabinet Office, the Japanese government department that reports each year on the economy, capital losses on land and shares came to ¥1,330 trillion between the peaks and 2003.