What happened to Japan during their "bubble economy" how did the government respond? what policies did...

What happened to Japan during their "bubble economy" how did the government respond? what policies did they set? how did those policies workout for them? time period 1985-1990.

Expert Solution

Japan Asset Price Bubble was the period from 1986 to 1991 during which real estate and stock market prices rose sharply to the extent that there was huge inflation in the country. This increase was due to heated economic activity and an uncontrolled money supply along with credit expansion.

Speculation regarding the market caused the market to come down and ultimately crash in 1992. After World War, Japan has risen again and become the King of Electronics and the country with one of the highest PPP within three decades, thanks to the factors which includes government policies, domestic savings, low value of Yen, stable politics and American Defence Protection. Country’s standard of livings rose rapidly with PPP (Purchasing Power Parity) reaching and even exceeding that of the developed countries of best, making it the second largest economy after USA. During this era, the GDP growth rate in Japan this time was 3 times more to that of its western partners. However, the things changed after the Plaza Accord of 1985, which led the government to follow expansionary monetary policy. The property and stock prices were sky-rocketed. This euphoria led to massive speculation which ultimately led to the burst in 1990 and consequently, the lost decade.

Rahul Sunny answered 1 year ago

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