In the late 1990s, some observers began to make comparisons between the rapid rise in stock prices then taking place in the United States and the escalation in asset values in Japan in the late 1980s. Did Japan's experience, which was followed by more than a decade of stagnation, contain any cautionary lessons for the United States? With the recent slowing in the pace of U.S. economic activity, the question has been asked more earnestly; and while the prevailing view remains that the United States is not Japan, the denials have been less forceful.
This article compares Japan's experience during the 1980s with U.S. prosperity in the 1990s, trying to discern the extent of similarities and differences. It then provides an overview of how Japanese policymakers responded once economic conditions began to deteriorate. On balance, the author notes, the conclusions are reassuring. Although similarities exist between Japan's economic performance in the 1980s and U.S. experience in the late 1990s, land values, as well as stock prices, rose very rapidly in Japan. Bank lending backed by land also rose very rapidly. This is a critical difference, she stresses, as the subsequent decline in Japanese land values crippled the Japanese banking system and economic activity generally.