By the 1980's, Japan had succeeded in creating one of the world's strongest and most stable economies the world had seen up until that time. By then, many viewed Japan as the model for economic strength and advancement. Many people naively believed that the record level highs that Japan's stock market and housing market had been experiencing would simply not end. "Back then the Nikkei Average was the bullet train of global equity markets. It seemed unstoppable, at least until the Bank of Japan started raising interest rates. Then the market jumped the rails and remains - more than ten years later - a crumpled wreck."1 When the "bubble economy" finally burst it marked the end of Japans glory days. Today the Nikkei Average sadly trades at less then half of its December 1989 value of 40,000.
The Crash.
How did an economic powerhouse go so wrong? It all started to come to an end in 1985 when the G-7 conference convened. It was decided that the best way to counter balance Japan's looming surplus was to allow the yen to naturally rise, making their exports more expensive to the rest of the world, creating the wanted result of a reduced desire for Japanese goods. This theory was not realized though. The desire for the high quality Japanese products was still there and consumers continued to buy the goods. The move decided on by the G-7 conference only helped to facilitate the increase in wealth and growth of Japan's economy. "In late 1989, Yasushi Mieno - the bank's new head - began to raise interest rates sharply. Without easy credit, the speculative machine went into reverse."2 Although this move headed off the decline in Japan's economy there were several factors that caused this crash. Massaki Higashida, the deputy manager at Nomura Securities, believes everything was a bubble in those days. The most prevalent causes though were economic, political and social factors.
Economic Factors.
