Just wrapped up an article for a column and I wrote the following: There is a risk that a prolonged slowdown in China could weigh down the r...

Japan's Lost Decade






Just wrapped up an article for a column and I wrote the following: There is a risk that a prolonged slowdown in China could weigh down the rest of the interconnected developed world. There is alot of talk of China’s real estate industry eventually slowing down and mimicking Japan's ten year long “lost decade” that occurred after Japan’s unfathomable price bubble. During that time the paper value of Japan's aggregate real estate was four times that of the United States; the ward Chiyoda-ku was more valuable than Canada and Tokyo’s 280 acre royal palace was considered more valuable than the entire state of California.

That said, I decide to type up a quick blog post about the mother of all property bubbles, Japan 1986-1991. The Japanese asset price bubble (baburu keiki, "bubble economy") was an economic bubble until early 1992, then the price bubble burst and Japan's economy stagnated.

According to HBR:

News reports indicate that in 1988, Japan’s theoretical land value surpassed by four times that of all land in the United States, a country nearly 25 times larger than Japan. Another real estate bulletin: the calculated cash value of a single ward in downtown Tokyo—Chiyoda-ku—could purchase all of Canada. And another: land in Tokyo’s Ginza shopping district is selling for $250,000 a square meter.

Americans who ask themselves how the Japanese managed to buy up a quarter of California’s banking market in such a short time, how they effortlessly outbid all comers for the Rockefeller Group or any of dozens of other major and minor U.S. corporations, or how they are so rapidly and successfully transferring manufacturing onto an international base after decades of insisting that such a thing was impossible, will find large elements of the answer in Tokyo’s real estate listings. The creation of massive amounts of paper assets, the collateralization of them through huge volumes of low-interest lending against such assets, or the realization of cash based on the same assets through the volcanic upwelling of share prices on the Tokyo stock market, and the export of the resulting capital through conversion of the yen into vastly cheapened dollars is a process that defines both how big and far-reaching this new Japanese “money machine” is. It also shows how simply and efficiently it works.


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