Japanese responses to asset price bubbles: comparison with the U.S

It is widely believed that the Japanese response to the boom and the bust in the late 1980s and early 1990s was too little and too late, while that of the US in the 2000 was decisive and timely. Though such may have been the case with the bailing out of large banks and the recognition and resolution of bad assets, the monetary policy responses in Japan and the U.S. before and after the real estate price peaks closely resemble each other in their i) size and timing of tightening and easing, ii) deviation from the Taylor targets and iii) responses to asset price impulse. Prudential policies in Japan and the US also were common in that they i) started with qualitative guidance on real estate lending in the early phases of the bubble, ii) added layers of qualitative guidance as the bubble grew, and iii) stepped into quantitative guidance only after the initial signs of peaking-out. Though the Japanese authorities are believed to have gleaned h to prick the bubble while the U.S. authorities argued against leaning and advocated gcleaning up h the mess after the bust, their behavior did not differ much. Intention, action and effects staggered with each other and both monetary and prudential policies in Japan and in the U.S. lagged behind the real estate price moves and may have deepened the bust. Timeliness of the policy responses may matter more than how they are motivated, explained or labelled: clean or lean, microor macro-prudential.