Title: The Lost Decade: Lessons From Japan's Real Estate Crisis
Headings: The Lost Decade: Lessons From Japan's Real Estate Crisis
The Lost Decade: Lessons From Japan's Real Estate Crisis
What Was Japan's "Lost Decade" Real Estate Crisis?
Understanding Japan's "Lost Decade" Real Estate Crisis
Japan's Lost Decade
Key Takeaways
The Bank of Japan's Interest Rate Mistakes
A Liquidity Trap
Breaking Out of a Liquidity Trap
Credit Crunch
Solutions to a Credit Crunch
Article Sources

Content: 3 ﻿ (To read more about bubbles, see Economic Meltdowns: Let Them Burn Or Stamp Them Out? and Why Housing Market Bubbles Pop .) The Bank of Japan's Interest Rate Mistakes
It is generally acknowledged that the Bank of Japan (BoJ), Japan's central bank, made several mistakes that may have added to and prolonged the negative effects of the bursting of the equity and real estate bubbles. For example, monetary policy was stop-and-go; concerned about inflation and asset prices, the Bank of Japan put the brakes on the money supply in the late 1980s, which may have contributed to the bursting of the equity bubble. Then, as equity values fell, the BoJ continued to raise interest rates because it remained concerned with still-appreciating real estate values. 4 ﻿
Higher interest rates contributed to the end of rising land prices, but they also helped the overall economy slide into a downward spiral. In 1991, as equity and land prices fell, the Bank of Japan dramatically reversed course and began to cut interest rates. 5 ﻿ But it was too late, a liquidity trap had already been set, and a credit crunch was setting in.