On May 27, 2000, a Member of the Policy Board, Bank of Japan, Eiko Shinotsuka, spoke on the subject “Japan’s Economy and the Role of the Bank of Japan.” His main focus was the lost decade of the 1990s.
In his view, two factors were critical: (1) the bursting of the land and stock market bubbles, and (2) a structural problem.
Euphoria and loss of self-control, coupled with the Bank of Japan providing easy money for a long time, resulted in unfounded bullish expectations. Capital invested in assets at the peak was devalued when the bubble burst (luxury resort hotels on remote islands). The resulting fall in asset prices impaired the asset quality of both borrowers and lenders.
