Japan's asset-price bubble bursts

Fueled by cheap credit after the Plaza Accord, Japanese land and stock prices had reached extraordinary levels by 1989 — at the peak, the grounds of the Imperial Palace in Tokyo were popularly said to be worth more than all the real estate in California. The Bank of Japan began raising rates in 1989 to cool the bubble, and the Nikkei stock index lost roughly 60% of its value over the following three years while land prices fell for over a decade. Japanese banks, heavily exposed to real-estate collateral, spent years working through bad loans rather than lending to new growth, a drag that economists later labeled the 'Lost Decade' — a period many now extend to two or three decades of low growth and periodic deflation.