Japan’s Lost Decade, 1990-2000

Episode #8 of the course “World’s biggest financial crises”

Bubble bursting is definitely not an exclusively American phenomenon. Prior to the 1990s, Japan experienced significant growth during the 1980s—growth much higher than the average 2 percent. Some suggested that it was posed to catch up with the growth of the United States. However, the increase virtually stopped in 1991.

From 1991 to 2000, Japan’s gross domestic product was 0.5 percent. Analysts have dubbed this slow progression the “Lost Decade.”

Historians and analysts have not yet nailed down a specific factor that caused this slow in growth. It might have something to do with the decreased hours in the work week, which was brought upon by legislation—workers now worked 40 hours instead of 44. They also increased the number of national holidays. Government offices and financial institutions were now occasionally closed on Saturdays. Private investment declined while the government’s share of the output increased. Some argue that this may have been caused by borrowing limitations on banks and financial institutions, but that hypothesis does have a few holes.

Other common theories center around financial speculation and large amounts of borrowing due to low interest rates. Then, when the government stepped in to control spending and keep inflation under control, credit was harder to obtain, which then stifled growth. This in turn halted progress and economic expansion. Most sources agree that the “Lost Decade” was related to the bursting of the asset bubble. Some analysts have even included 2001 to 2010 in this “decade,” which implies that Japan is still slowly recovering.

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