“The air in the street was filled with the belief that tomorrow would surely be much more enjoyable than today. At the time, I thought that was just normal, but looking back now, I realized that it was something special. “My grandfather, who lived through the bubble economy, reflects on those times

From the end of 1986 until 1991, Japan experienced an unprecedented economic boon, filled with excitement and hope. This period of economic growth, known as  the “bubble economy,” is still remembered today as a legendary event. However, just like a bubble that keeps growing until it suddenly bursts, this prosperity came to an unexpected end one day. After that, Japan entered a long period of recession known as the “lost decade.” 

During that era, when everyone was filled with hope for the future, what was really happening? As the collapse loomed, what did the people of that time see?

1. The Prosperity of the Bubble Period and the Transformation of the Japanese Economy

The bubble economy refers to the rapid rise in asset prices, such as real estate and stocks, which grew at a pace beyond the actual economic growth, becoming disconnected from the real economy. The Japanese society was significantly transformed by the bubble and its eventual collapse. This blog will explore why the bubble economy happened, how it collapsed, and its effects on people’s lives and modern society.

I also interviewed my grandfather, who actually experienced the bubble period. At the time, he was in his 40s and working for a major electronics company in Osaka, Japan’s second-largest economic city. During the interview, he spoke about those days with such passion, as if he were reliving the ear. “Osaka was one of the cities that symbolized Japan’s growth, and entire city was brimming with energy,” he said, his eyes sparking with excitement. Through the perspective of him, who worked at the heart of this era, I will provide specific insights into the real voices of that time.

Prosperity During the Bubble Period 

The rise of the bubble economy was greatly influenced by international economic conditions in the 1980s and domestic policies in Japan. In the early 1980s, the U.S. was facing a severe trade deficit. The dollar was high, making American-made products lose their competitiveness. Meanwhile, Japan benefited from the weak yen, because they could export high-quality, low-priced products to the U.S. market. This situation led to the economic decline in the U.S., causing demonstrations.

To resolve this issue, the U.S., the U.K., Germany, France, and Japan signed the Plaza Accord in 1985. They agreed on policies to curb the strong dollar. As a result, the yen appreciated rapidly, moving from 240 yen per dollar to 140 yen per dollar. 

“Wow, I was really surprised by this strong yen.” He said, looking back. “Nowadays, 150 yen to the dollar is pretty normal, but back then the yen was much weaker, so many people were thrown off by the sudden rise.” While he did have an interest in the positive aspects brought by the strong yen, he admits that his feelings were more dominated by the anxiety over such a rapid change and concern about its long-term impact. He also mentioned, “Honestly, I wasn’t too happy about the ‘America-led yen appreciation,’ I kind of felt that America should deal with its own problem, and don’t drag other countries into it, you know? But don’t let any Americans read this part, haha.” 

This currency fluctuation caused Japanese products to lose their price competitiveness, and export industries got impacted. Japan needed to stimulate domestic consumption, so the government implemented monetary policies to lower interest rates, making it easier for businesses and individuals to borrow money. However, by this time, Japan had already entered a period of low economic growth, and the actual demand for borrowing money to expand business wasn’t high. The focus then shifted to the real estate and stock markets. 

During this time, a belief known as “Land Myth” spread, which claimed that land prices would always rise.

“Everyone believed that as long as you bought land, the value would definitely increase, even if you did nothing. They promoted the rising land prices and the value of land on TV every day. People said, ‘If you have money and don’t invest in land, you’re an idiot,’”

As a result, many people started to invest in land, and banks also supported this trend by offering loans backed by land as collateral. This created a cycle where people bought land, used the price appreciation as collateral, and borrowed more money to purchase even more land. 

“My relative bought a 100 million yen apartment. Then someone from another real estate company came and offered to buy it for 300 million yen. In the end, the person never moved in and just sold it.”  At the time, 100 million yen was equivalent to approximately 915,000 USD, and 300 million yen was around 2,750,000 USD. This shows how asset management became overheated in a short period. 

Similarly, a large amount of money flowed into the stock market, causing asset prices to rise, disconnected from the real economy. In 1989, the Nikkei Stock Average hit an all-time high of 38,915.

This cycle of “buying because the price is going up” and “the price goes up because it is bought” is a characteristic feature of the bubble economy, where actual value aws disregarded. 

Transformation of Society

The dramatic rise in real estate prices and overheated stock market were not only signs of economic prosperity but also had an impact on culture, people’s value, and lifestyle. 

My grandfather also felt the shift in the standards of economic success and spread of an optimistic atmosphere.

“Before that, stable jobs like public employees were seen as a sign of success, but during the bubble, success meant having a lot of money and luxurious things. So, public employees suddenly became unpopular. Instead, real estate agents and stockbrokers were the ones in demand.” 

The rise in assets allowed many people to accumulate wealth in a short period of time, and showing off a wealthy lifestyle became a status symbol. At the same time, companies continuously offered luxury products and services, and wealthy consumers eagerly enjoyed them. This led to the rapid growth of a consumer culture. 

These changes created a general atmosphere of optimism, a “buzzing mood” throughout society. 

“I was already in my 40s with a wife and kids, so I didn’t go out to party, but younger people especially were going to nightclubs and discos, living it up. Also, many people were traveling abroad. Now, because the yen is so weak, it is so hard to go overseas though.” 

Many companies were doing well, and problems like layoffs or financial difficulties became rare. My grandfather worked for an electronics company, which was not at the center of the bubble economy, but he said, “Like ‘when the wind blows, the bucket maker profits,’( it is a proverb means one event can cause a chain reaction that benefits something or someone indirectly) various fields develop in chain reaction. Even so, bonuses that used to be paid once a year were given four times a year, and we could go on overseas trips under the guise of company-paid vacations.”

“There was sense in society that the economy was growing, that we were in a time of transition.” People felt hope and expectations for the future, and this optimistic atmosphere affected not just business but also personal lives. This energy made the streets lively and filled Japan with excitement. In this way, economic prosperity lifted culture and living standards, and Japan, even if only temporarily, experienced a vibrant era.

2. The Burst of the Bubble and Its Impact

The rapid growth of the bubble economy eventually came to an end, just like a bubble that eventually bursts. The collapse of the bubble had both short-term and long-term effects on the Japanese economy. The long recession that followed was often called the “Lost Decade.” My grandfather said, “Lost Decade? It wasn’t just 10 years. It was the ‘Lost 30 Years.”’

Why Did It Collapse?

The direct reasons for the collapse were new regulations and economic tightening. 

The first regulation was the BIS regulation, which controlled the ratio between bank’s capital and their deposits. To comply with this rule, Japanese banks had to quickly collect the loans they had given out. 

Secondly, the government introduced the “Soryo Kisei” (total volume control), which essentially banned loans for real estate. This caused people who had invested in land, believing in the “Land Myth,” to rush to sell their properties, leading to a sharp drop in land prices. 

Additionally, banks raised interest rates as part of economic tightening. Loans that were previously available at low interest rates suddenly became much more expensive. Under these conditions, many people could no longer borrow or even repay their loans, leading to widespread bankruptcies. On top of this, the government introduced a land value tax, which imposes a tax on owning land, further worsening the situation. 

The Aftermath of the Collapse 

Many people couldn’t accept the end of the bubble economy and remained optimistic, believing the economy would recover soon. However, the recovery was slow, and tough times continued for a long period. 

My grandfather said, “on the economic index, the bubble ended in 1991, but we didn’t feel it at the time. It wasn’t until 1997, when Yamaichi Securities (one of the big 4 securities firms at the time) went bankrupt, that I realized things were really bad. Until then, I had a faint hope that the economy would bounce back someday. Maybe it was hard to accept because those were such wonderful times.”

Government policies, such as regulations and economic tightening, also caused significant damage to the economy. 

“Real estate values kept dropping. Many people were stuck in a vicious cycle where they couldn’t pay their taxes and wanted to sell their land, but they couldn’t find buyers. A friend of mine even had to give up his house.”

Banks also tightened lending or called in loans, causing severe financial damage to many. 

“The saying ‘banks lend umbrellas on sunny days but take them away when it rains’ felt very true,” my grandfather said. However, banks themselves couldn’t recover all the money they had lent and many also went bankrupt. 

After the collapse, Japan entered the “Lost Decade”.” Land and stock prices crashed,  and a wave of company bankruptcies followed. The entire economy stagnated, and Japan’s economic growth remained slow for many years. Even now, 30 years later, the economy hasn’t fully recovered, leading people to call this period “Lost 30 Years.”

3. Impact on Modern Society

My grandfather mentioned that even 30 years after the collapse of the bubble economy, it still has a both positive and negative impact on Japanese society. 

On the positive side, there are the infrastructure developments, the foundation for companies’ overseas expansion, and cultural aspects that were establishing during the bubble era. Regarding infrastructure, the development of highways, the Shinkansen, and urban development in city centers remain crucial fundamental for modern Japan. For instance, bustling areas such as Shibuya and Shinjuku in Tokyo owe their vibrant streetscapes to large-scale urban development carried out during the bubble period. The period also saw a surge in overseas expansion by Japanese companies. In the 1980s, companies like Toyota and Sony established global competitiveness. Culturally, the bubble era significantly influenced the entertainment and fashion industries. In particular, the fashion industry saw the rise of bold designs and bright colors, which are now benign re-evaluated as nostalgic elements. “Bubble fashion” and “bubble music” are sometimes recreated on social media, with trends from that time continuing to inspire today’s style. 

On the other hand, negative aspects still linger. In addition to the prolonged economic stagnation, my grandfather believes the changes in the consumption mindset and values of the younger generation have also had an impact. He argues that as many young people have become more risk-averse, their interest in investment and business centuries has decreased, contributing to a decline in economic activity. 

“Today’s young people are living more prudently, taking lessons from the bubble era. But I feel they lack the desire to take risks. The aggressive atmosphere and excitement we had back then are no longer felt. If you don’t take risks, you won’t lose anything, but you won’t get anything either,” he pointed out. In this way, the bubble economy influenced not only the way people live but also the broader societal changes. He is raising a warning about the modern society that values living prudently without taking risks. While young people are applying the lessons of the bubble era, their fear of failure has made them less willing to take on challenges. 

4. Conclusion

30 years after the collapse of the bubble economy, we are still deeply influenced by its legacy while building a new era. The infrastructure development, overseas expansion of companies, and culture impacts brought about by the bubble economy continue to benefit modern society. On the other hand, economic stagnation, the growing risk-averse mindset of the younger generation, and the lack of a spirit of challenge are casting shadows over our society. My grandfather sends this message to us: “Failure is actually frightening. But there’s no point in tapping a stone bridge and not crossing it. (The proverb “tap stone bridge” means look before you leap, so this sentence means that even if you check something carefully, it’s meaningless if you don’t take action.) It’s by taking risks that new possibilities open up. Don’t be afraid, and try to challenge yourself more.”

The legacy of the bubble economy is not only about past glory but also includes lessons we should learn from. We are in a position to use these lessons and create values that will be passed down across generations. He has high hopes for the strength we possess. “You can learn from lessons of the past, and you also have the power to carve their own path and build the future. It is their continuous spirit of challenge that will give hope to the next generation and become the driving force that shapes society.”

In order for us to continue moving forward into the future, it is crucial that we don’t waste the experiences of the past and that we embrace the future with courage, without fearing failure. The values passed down across generations, through their changes in history, possess the power to unlock new possibilities for the next generations. And we are the ones who can unleash that power towards the future.