ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The end of the asset bubble was caused by a combination of rising asset inflation, tightening monetary policy, and an increase in non-performing loans. Japan’s central bank, the Bank of Japan (BOJ), raised interest rates in an attempt to curb asset inflation and cool down the economy.

Detailed explanation-2: -Overall, the Plaza Accord directly led to appreciation in the yen, and it incentivized lowering the discount rate in 1986 and 1987, which is considered to be one of the direct causes of the asset price bubble.

Detailed explanation-3: -The term baburu keizai is Japanese for ‘bubble economy’. It refers to the swift rise in Japan’s asset prices-primarily stocks and real estate-beginning around 1985, as well as their continued growth for the next five years, and then the rapid collapse of those prices in 1990.

Detailed explanation-4: -Japan’s Nikkei stock index hit its all-time high at 38, 915 in December 1989 during an asset-inflated economic boom there (sound familiar?). The Japanese stock market crashed after the Japanese Central Bank was forced to tighten monetary policy, and it still has not fully recovered.