The Enigma of Japanese Asset Prices

Japanese asset prices have recorded significant declines since the late 1980s. The Nikkei index of 225 average stock prices dropped from a peak of ¥38,916 on 29 December 1989 to ¥7862 on 11 March 2003, a drop of 79.8%. Land prices also dropped sharply: since the first half of 1992, land prices have dropped relentlessly, usually falling at a double-digit pace. The semi-annual index of commercial land prices in the six major cities stood at 104.5 in the second half of 1990. By the first half of 2002 it had dropped to 15.9, the same level it had in the second half of 1979 (the figures had become so low that the statisticians decided to switch the base year). Peak to trough, this amounts to a fall of 84.8%. There have been many attempts at explaining such extraordinary and prolonged falls in asset prices. The only sensible explanation, however, remains that asset prices had simply been too high in the first place. Indeed, most observers recognize now that the recession of the 1990s has its roots in the events of the 1980s, especially its asset markets.1