What caused Japan's stock market crash?
Japan's legendary asset price bubble and subsequent stock market crash at the beginning of the 1990s were triggered by an unsustainable economic boom fueled by excessively loose monetary policies, massive corporate speculation, and unchecked real estate inflation during the late 1980s. Following the Plaza Accord, the Bank of Japan maintained low interest rates to stimulate the economy, which flooded financial markets with cheap credit and drove land and equity prices to astronomical, unrealistic valuations. When the central bank aggressively raised interest rates to cool the overheated economy, the speculative bubble burst instantly, plunging the Nikkei stock index into a prolonged multi-decade economic stagnation characterized by crippled bank balance sheets and deflation.
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