The truth about Japan’s economic collapse in 1990

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Translated from the Headlines (Toutiao 头条新闻)

Author: Tenth Economic Observation Room(第十经济观察室)

How did the Japanese economy collapsed in the 1990s?

Many people attribute the reason to this: In 1985, the United States forced Japan to sign the “Plaza Agreement.”

It was the “Plaza Accord” that allowed the yen to appreciate rapidly in a short period of time, which severely hit Japan’s export manufacturing industry; it forced the Orient to move away from the real world, play with the bubble economy, and eventually went to destruction.

Therefore, all this is a conspiracy of the Americans.

But today in 2021, when a large number of historical materials before and after the “Plaza Accord” were revealed, we only discovered that the truth is not that simple.

The great philosopher R once said: The external cause is the condition of change, the internal cause is the basis of the change, and the external cause acts through the internal cause; the egg changes into a chicken due to the proper temperature, but the temperature cannot make a rock become a chicken.

In other words, for a country’s tremendous economic changes, external factors can only act as catalysts, and internal factors are the root of the changes.

When it comes to “Japan’s economic collapse in the 1990s,” the “Plaza Accord” can only be regarded as an external cause. The problems inherent in the Japanese economy are the root cause (internal cause) of the great changes.

So, before and after the “Plaza Accord”, what are the problems with the Japanese economy?

How was this question motivated by the “Plaza Accord”, which led to the collapse of the Japanese economy?

Everything must start with a US dollar interest rate hike.


As we said in the previous article: Since 1981, in order to suppress the high domestic inflation of more than 10%, the United States has raised the benchmark interest rate five times in a row, from 5% to 15%, with extremely aggressive currency deflation. Policy to reclaim the US dollars that are indiscriminately on the market.

After a fierce operation, American inflation was suppressed: In 1981, the inflation rate was as high as 10.33%; in 1982, it dropped to 6%, and in 1983 it dropped to 3%.

But what people never expected is that when pressing the gourd, the dipper floated up: American inflation has improved, and domestic manufacturing is in trouble.

Due to the sharp rise in interest rates, the yield of investment products such as domestic Treasury bonds, deposits, and funds in the United States has soared all the way; this has attracted a large amount of overseas US dollars to return to the country, resulting in a strong appreciation of the US dollar internationally:

From 1981 to 1984, the U.S. dollar appreciated 25% against the yen and 57% against the mark.

The appreciation of the U.S. dollar has brought a disastrous disaster to the US manufacturing industry.

On the one hand, the export competitiveness of the U.S. manufacturing industry has plummeted. This is also well understood: as the U.S. dollar appreciates, people around the world will have to spend more money to buy American products.

In 1980, Mr. Koizumi in Tokyo could buy an American high-end electrical appliance for only 2,100 yen; in February 1985, Koizumi had to pay 2,600 yen to buy it.

What would you do if you were Mr. Koizumi? I think most people will definitely give up American products and choose cheaper German or Japanese products.

This has caused the U.S. manufacturing industry’s share of the global market to plummet.

On the other hand, due to the appreciation of the U.S. dollar, domestic imports of Japanese and German goods have become cheaper.

In 1981, a Toyota bridge car worth 20,000 US dollars, in 1984, only needed 15,000 US dollars to get it, and 3 years of maintenance; this made even the American people reluctant to buy American products. They have switched to Japanese products of high quality and low price.

As the saying goes, his arsenic is my honey; while the American manufacturing industry is in recession, Japanese manufacturing is emerging. Relying on the opportunity of the appreciation of the dollar (the depreciation of the yen), in the global market, the US manufacturing industry is Defeated.


Take Caterpillar, a traditional American excavator giant at that time, as an example:

In 1980, the company’s global sales reached 3.3 billion U.S. dollars; just three years later, it fell to 1.7 billion U.S. dollars, almost cut in half.

Most of Caterpillar’s market share was taken away by Japanese companies.

This made Caterpillar’s ​​chairman Morgan Lee feel angry and unbearable. He once publicly said to the media: If the dollar depreciates by 20%, I believe that Caterpillar’s ​​excavators can “overthrow” Tokyo again.

It happened that Morgan Lee was one of the leaders of the ‘National Business Roundtable’, so he took a group of manufacturing bosses who had the same situation as him to lobby in Congress.

After some interesting exchange and political game, the US Congress finally reached an agreement: to list Japan as an “unfair trading nation” and force the yen to appreciate against the US dollar in order to enhance the export competitiveness of the US manufacturing industry.

Next, is the plot that we all know well:

The United States coerced and lured, and Japan half pushed halfway. On September 22, 1985, the two sides, together with Britain, France, and the Federal Republic of Germany, signed the “Joint Statement of the Five Finance Ministers on Intervention in the U.S. Dollar Exchange Rate”, promising: Within 6 weeks, the yen has appreciated by 10-12% against the U.S. dollar.

This is the famous “Plaza Accord.”

And the reason why Japan was half-pushing the signing of the “Plaza Agreement” was that the then Japanese Prime Minister Nakasone and Finance Minister Toshita Takeshita had their own small abacus.

They feel that the appreciation of the yen against the US dollar is within an acceptable range: on the one hand, they can cater to the needs of the United States and can create their own pro-American staff in the country, which is conducive to their permanent official position. The United States is Japan. The emperor is too emperor.

On the other hand, the yen’s appreciation of 10-12% against the US dollar has hit Japan’s export competitiveness, but it can also reduce the import cost of energy products such as crude oil, which has its own disadvantages.

Not only considered for the country but also consolidated his official position, both public and private, perfect!

However, the ideals of Nakasone and Takeshita were very full, but the reality quickly taught them how to be human.

The superficial Nakasone and Takeshita Noboru have an almost ignorant understanding of finance. They don’t understand: the appreciation of the yen is not about appreciation if you want to appreciate; if you want to stop, stop.


The “Plaza Accord” originally planned: Britain, the United States, France, Germany, and Japan will jointly sell 18 billion U.S. dollars in green coins to purchase Japanese yen within six weeks; achieving the goal of allowing the Japanese yen to appreciate against the US dollar by 10-12%.

But in fact, the five countries only spent a week and sold 10.8 billion U.S. dollars to successfully complete the task.

The reason is reasonable, but also unexpected:

It is reasonable to say that after five years of the strong appreciation of the U.S. dollar, it was already in an overvalued position when the “Plaza Agreement” was signed. The five governments’ joint intervention in the market to promote the depreciation of the U.S. dollar is in line with market laws.

It is unexpected because the governments of the five countries did not expect the global private capital and speculative hot money to be so powerful. Originally, it was assumed that the five governments would lead and private capital would follow up. It would take 6 weeks to complete the goal, but the result was: The completion was accelerated in 1 week.

This means that in 1985, global private capital and speculative hot money have grown into a more powerful market-leading force than the government. In the matter of global currency exchange rates, the governments of the five countries invested 10.2 billion US dollars, compared with speculative hot money. The scale of hundreds of billions of dollars can only be regarded as a drizzle.

And when speculative hot money makes the first pot of gold in the appreciation of the yen, their greed will not stop:

For example, you sold 100 million US dollars of green coins on September 23, 1985, and exchanged them for 25 billion yen (the yen-dollar exchange rate was 250:1 at that time). One week later, the yen-dollar exchange rate appreciated to 225:1. 25 billion yen is worth 111 million U.S. dollars. It makes 11 million U.S. dollars a week. It’s you, will you stop?

As a result, after the yen has completed its appreciation target against the US dollar, speculating on hot money, it is still frantically doing more yen and selling US dollars.

The faster the yen rises, the more they earn; the magic box of greed is opened, and no one can stop it, even if you are the prime minister.


As a result, under the frenzied speculation of global hot money, the pace of the appreciation of the yen was completely out of control. The appreciation that should have been completed in 10 years or even longer was accelerated to 3 years and was over fulfilled.

After the “Plaza Accord”, the value of the yen continued to soar:

In 1986, the yen appreciated by 25% against the dollar;

In 1987, it appreciated another 26.5%;

In 1988, it rose another 4%.

From September 1985 to December 1988, the Japanese Yen appreciated 93% against the U.S. dollar, almost doubled.

Faced with such a crazy pace of appreciation, the Japanese manufacturing industry is completely confused:

In 1985, the price of Japanese TV was 200 U.S. dollars. Due to the appreciation of the yen, the export price was as high as 400 U.S. dollars at the end of 1988. Japanese products are still competitive.

This led to: in 1986, Japan’s total exports plummeting by 16%; in 1987, it fell by 6%.

The export company is a piece of mourning.

However, the Japanese are the axis. In the first few years of the appreciation of the yen, they still stick to the manufacturing industry: what I lose, I can definitely get it back; if you don’t appreciate it, then I will desperately reduce costs and keep export prices unchanged.

As a result, after 1985, Japanese manufacturing companies have appeared various wonderful money-saving tips:

For example, in a factory, even the lubricating waste used by machine tools for cutting metal must be recycled and reused;

For another example, at that time, many Japanese companies’ New Year cards were mailed directly to employees’ homes from Hong Kong, China; the cost of international mailing in Hong Kong, China was cheaper than that in Japan’s domestic post.

There are too many to mention.

This is the case, the Japanese export manufacturing industry, after persisting for several years, still completely collapsed.


The reason for the collapse is simple: in the face of a double appreciation of the yen, any technology, craftsmanship, or diligence is futile.

What is even more frightening is that the manufacturing industries in Southeast Asia and Mainland China, especially the low-end export manufacturing industries, have begun to grow slowly; when the yen has doubled, they will not only compete with Japanese manufacturing for the global market but also the Japanese domestic market. , Is also being eaten away.

At that time, a Japanese-made quartz watch was worth 40 US dollars, but a Chinese-made quartz watch only cost 1 US dollar. Although the quality of the Chinese-made quartz watch was a little bit poor, the price difference was such a big difference, if it was you, which one would you choose?

Under the background of the United States besieging in front and Southeast Asia and mainland China are catching up behind, Japan’s mid- and low-end manufacturing companies have no choice but to move towards two endings:

First, large Japanese manufacturing companies simply moved their production lines to Southeast Asia and Mainland China; labor costs in these areas are lower and are not affected by the appreciation of the yen. Japanese companies can also make more profits than domestic ones.

These actions by large Japanese manufacturing companies and multinational capital have indirectly promoted the rise of the four tigers in Asia and the ascent of a bigger dragon. This historical butterfly effect will be published in the next issue of “From Heaven to Hell, A Biography of the Four Asian Tigers.” In, let’s talk in detail.

Second, what about small, medium, and micro-enterprises? They were unable to move their production lines overseas, so they simply shut down or shut down the factories, took the money, and joined the army of stock speculation and real estate speculation.

These small, medium, and micro enterprises are really lucky. As soon as they were about to fall asleep, the Japanese government sent a pillow: lowering bank borrowing rates.


In other words, the Japanese government is very anxious because of the Great Depression in the manufacturing industry due to the appreciation of the yen.

In a desperate situation, they came up with a bad idea to “lower bank borrowing rates” to reduce corporate financing costs.

From January 1986 to July 1987, Japan lowered its benchmark interest rate five times in a row, from 5% to 2.5%.

It’s a good thing to want to put out a fire, but if you carry an oil drum to put out a fire, it’s your fault.

In fact, the Japanese manufacturing industry after the “Plaza Accord” is not short of capital but the market; if the Japanese government can control the yen but not rapidly appreciate, Japan’s export manufacturing may still live a few more years.

Of course, the Japanese government did not fail to control the appreciation of the yen. Six months after the “Plaza Accord”, Minister of Finance Takeshita felt that something was wrong. The appreciation of the yen was too strong and it was necessary to intervene.

But if you want to intervene, you must pull the United States, France, Germany, and Wall Street together.

As a result, US President Reagan answered simply: The dollar should depreciate further, and the yen should bear with it.

Wall Street is even better: the appreciation of the yen makes us profitable, you let us stop? The concubine can’t do it.

In this way, the yen was dragged on until 1989, and the appreciation of the day lily became cold.

More importantly, due to the successive rise of the Four Little Dragons, Four Little Tigers in Asia, and mainland China, even if the yen does not appreciate, Japan’s mid- and low-end manufacturing industries cannot be maintained.

At this time, what Japan should do more is to abandon the old thinking of “export manufacturing to build a country” and find a new way: on the one hand, the manufacturing industry is upgraded and the scale of its high-end manufacturing industry is expanded; on the other hand, it is to seize the opportunity of the IT Internet revolution. , To create a new industry to replace the low-end manufacturing.

However, Japan’s path dependence is too serious, and it is unwilling to take the risk of transformation. It just wants to lie crazily in its comfort zone.

At that time, the Japanese government lacked a broad vision of changes in the global manufacturing landscape, had extremely low sensitivity to the IT Internet revolution, and had an ignorant understanding of modern finance.

As a result, under the conditions of overproduction and capital overcapacity, they still made a move to lower interest rates and release water frantically.


At first glance, small and medium-sized business owners found that such a low bank loan interest rate was used to increase leverage and speculate in real estate and stocks.

As a result, under the first wave of speculation by small and medium-sized business owners, the whole people followed up, and Wall Street’s overseas hot money also contributed to the increase in land prices in Tokyo:

In 1987, land prices in Tokyo soared by 65.3%.

In 1990, the price of apartments in Tokyo exceeded the average annual salary of the city by 20 times.

The same goes for the Japanese stock market:

In October 1987, the average share price of Nikkei was 26,600 yen; at the end of 1989, the average share price soared to 38,900 yen; in a little over a year, it rose by 50%.

Arrived around 1990:

The total market value of Japanese listed companies has swelled 1.5 times that of US companies and 45% of the global stock market;

The land price is even more exaggerated. Japan, which has only 4% of the US territory, has a total land price four times that of the US.

This kind of exaggeration, if you say it has no bubbles, it is really a ghost.

But at that time, most of the Japanese did not believe in evil. They scorned the few people who reminded that housing prices and stock prices had bubbles and mocked the minority of rationalists as the old antiquities who insisted on the geocentric theory.

They said: Tokyo housing prices have no gravity; Japan has created a new paradigm of economic development.

They also said: Japan surpasses the United States, it is just around the corner, and the 21st century will certainly belong to the Orientals.

In front of the colorful bubbles, all the people in Japan are demented. They only think the bubbles are beautiful, forgetting that the bubbles will eventually burst.


As the so-called Spring River Plumbing Duck Prophet, when the Japanese are indulged in the beautiful bubbles, they cannot extricate themselves; Wall Street is sober.

They thought: Good guy, your Japan’s GDP is less than 70% of our US’s, but the stock market has expanded to 1.5 times that of the US. This is not a bubble, what is it? Quickly slip away.

As a result, Wall Street dumped the stocks in their hands and cashed out at high positions.

Then a small number of elites within the Japanese government also came to their senses. They realized that domestic banks loan huge amounts of funds to stock speculators and property speculators, which is very risky. Once the housing market and stock market are turbulent, the Bank of Japan is likely to fail to collect a large amount of money. The bad debts, which in turn led to bankruptcy.

At this time, the Japanese government’s harassment operation came again. They did not understand the principle of “Severe illnesses cannot be treated with strong medicine.” They must know: Illnesses come like mountains, but they go away like silkworms.

However, the Japanese government used the Bushido spirit of Long Live Charge to deal with the big bubbles in the stock and housing markets.

In May 1989, Japan increased its benchmark interest rate from 2.5% to 3.25%;

In October, increase to 3.75%;

In December, 4.25%.

In 1990, it reached the highest 6%.

In March 1990, the Ministry of Finance and Finance of Japan began to strictly restrict bank loans to real estate.

Overseas funds have absconded, and the Bank of Japan has urgently contracted loans; the housing market and stock market suddenly no longer have fresh leeks. What does this mean?

This means that the time for the crash has arrived:

From December 1989 to October 1990, the Nikkei stock index dropped from a high of 39,000 points to 20,000 points, a 49% drop.

Entering 1991-1992, the Nikkei stock index still fell, and on August 18, 1992, it fell to 14,000 points, the same level as in 1985.

At the same time, housing prices have not improved much.

The decline began in 1991, and it has been falling until 2005, before stabilizing the downward trend. The price of houses and land in cities and towns across Japan has dropped by 75%; similarly, prices will return to the level of 1985.

This is really hard work for ten years, returning to the pre-liberation overnight.


The collapse of stock prices and house prices is not the most terrible. The most terrifying is the collapse of the Japanese banking system.

Because Japan’s huge amount of funds loaned to the stock market and the real estate market is locked up and cannot be recovered; the bank’s own capital chain has broken, and one after another has declared bankruptcy and reorganization; Japan’s entire banking system is facing the risk of a total collapse.

In order to rescue these banks, Japan paid a heavy price: From 1992 to 2005, Japan adopted the method of “zero interest on deposits” and transferred the 2830 trillion yen savings interest that Japanese households should have received to banks with a large number of bad debts. To help them get through the crisis.

After this scraping, the Bank of Japan avoided a total collapse, but at the cost of a collapse in Japanese consumer demand: 2830 trillion yen in interest should have been paid to Japanese households for consumption.

What’s more serious is that after the abnormal rise in housing prices from 1985 to 1992, the young population of Japan also collapsed. A large number of young people were stabbed with dignity in front of sky-high houses, and they have since become depressed; they don’t want to fall in love anymore, let alone. What about fertility?

This caused Japan’s total fertility rate to show a slow growth trend before 1984; after 1985, it plummeted all the way:

In 1985, the total population fertility rate was 1.76%; by 2005, when housing prices returned to normal, the data had fallen to 1.26%; it was too late to remedy the situation.

The young population is the future of a country; no one is talking about surpassing the United States

Japanese otaku obsessed with anime


Consumption collapsed, young people’s mouths collapsed, coupled with the collapse of physical manufacturing as we mentioned earlier.

The three most important factors of the Japanese economy have collapsed, so it is normal for it to fall into the lost 30 years.

And from the “Plaza Accord” to the appreciation of the yen and the collapse of entities; then to the fact that the Japanese economy turned out to be virtual, playing with the bubble economy; and finally triggered the bubble burst, the deductive logic of the Japanese economy’s slump since then, we can also see:

① The “Plaza Accord” is only the external cause of the 30-year loss of the Japanese economy and the internal cause of the Japanese economy’s own problems.

②These internal factors include Japan’s long-term dependence on “export manufacturing” and its path dependence on export manufacturing; so that even when the United States is surrounded by the front, Southeast Asia and China are still catching up with manufacturing industries. I want to rely on reducing costs and get back what I have lost.

As a result, in the face of the tide of history, Japan not only failed to retain the middle and low-end manufacturing industries, but also missed the focus of energy, capital, and policies on the cultivation of emerging industries such as IT and Internet; the industrial upgrade was quite a failure and completely lost The United States has a higher potential.

③These internal factors also include that Japan’s bureaucratic class, especially the top decision-making elites, have a narrow vision and arrogance; facing the tide of global manufacturing migration and the rise of the IT Internet revolution, they lack basic sensitivity and sit back and watch the world. The situation is changing, they just want to lie in their comfort zone for the elderly.

Judging from the series of financial policies adopted by the Japanese high-level officials in response to the appreciation of the yen and the economic bubble; the knowledge of the Japanese bureaucracy is generally backward, and their level of understanding of finance has fallen far behind the actual global financial development at that time. .

It’s not that Neon has overdeveloped finance and harmed Japan; it’s Japan, which doesn’t understand finance at all.

Of course, there are many internal factors that led to the breakdown of the Japanese economy in the 1990s, such as not paying attention to the problem of cultivating domestic demand, the ossification of the Japanese corporate system, and so on. Here we have time to explain in detail.

In short, in the 1990s, when the Japanese economic bubble burst, the biggest problem was themselves.

It is Japan’s entire economic system, corporate structure, bureaucratic rule, and even the remaining feudal Bushido culture, which is not suitable for the global production method of the Internet age.

If Japan wants to re-emerge, what it needs is not patching up the existing foundation, but a social revolution that breaks the old system.

This is a test of the wisdom and courage of the Japanese.

Okay, that’s all for today’s content. If you like, please follow, like, and leave a message.

In the next issue, we will talk about “From Heaven to Hell: A Biography of the Four Little Tigers in Asia”.

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