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Ⅶ Appendix

Reserve. It primarily deals with the Coolidge administration A Japanese financial engineering fueled the stock market
policies including the extension of free trade, anti-inflation bubble, by which speculation became an integral part of cor-
measures, and the relaxations of antitrust laws. The Federal porate earnings statements. After obtaining low-interest
Reserve not only provided regulations that foster U.S’ na- loans, corporations were readily able to raise funds on the
tional economic stance, but it also contributed to corporate markets. Whilst these funds often fueled capital investments,
improvements such as increased worker productivity and they were often recycled back into further speculative market
expanded research and development. actions. As the Nikkei, the leading index of Japanese stocks,
In fact, however, the driving force behind both the inflation kept zooming higher and higher, corporations were able to
and the bursting of the speculative bubble was the expand- report their speculative profits as higher earnings. Investors
ing utilization of leverage by both individuals and domestic would then rush to purchase their stock, driving earnings
firms. Americans used consumer credit to supply money for even higher and providing more funds for the company's
the purchase of new innovative products such as automo- speculative actions. At the end of the decade, speculation
biles, radios, etc. These products were created using new dominated the activities of some businesses: it is estimated
techniques of mass production that helped to cut down that perhaps 50% percent of total reported profits from
prices. Credit were also used for the purchase by individuals. Japan's largest corporations were derived from financial en-
As a result, this kind of purchase habit escalated the stock gineering.
market and eventually made investors draw the pole by tak- Land speculation was another crucial part of the Japanese
ing high margin loans provided by their brokers. Their pri- bubble economy. Japanese land prices were originally high
mary targets were industries involving new technologies, due to its small amount of available land. So, banks often
such as the automobile, motion picture, and aircraft indus- accepted property as collateral for loans, and land served
tries. In the early days, radio stocks boomed, rising by 400 as the engine of credit for the entire economy.
percent in the year 1928 alone, and the stock market at- By 1989, Japanese government officials were growing un-
tracted an immense public following. easy about the skyrocketing values of the Nikkei and land
On September 3rd, 1929 bubbles of the Dow Jones valuations. In May 1989, the government tightened the
reached its peak and began to deflate. October 24, which is monetary policies by raising interest rates, and ordered an-
known as the “Black Thursday,” marked the beginning of other hike on Dec. 25. While the Nikkei reached its all-time
the stock market’s hardcore downturn, remembered as the high on Dec. 31, stock prices began to plummet in January.
“Crash of 1929”. Approximately 13 million shares were The government increased interest rates five more times
traded on that day due to a sudden unexpected panic influ- before August 1990, in order to try and halt the continued
enced on the market. The Dow fell by a record 38 points on rise of property prices. But as the Nikkei kept falling, it was
October 28, and another 30 points on October 29th, 16.5 forced to intervene in a futile attempt to try and revive the
million shares were additionally traded in that day. Following market and stave off recession. Throughout the 1990s,
the chaos, the market came a long way, recovering from a Japan experienced slower growth than any other major in-
serious economic downturn during the early 1930s. dustrial nations.

4. Japan's bubble economy of 1980s 5. Dot-com bubbles (1995 – 2000)

From the 1960s to the 1980s, Japan had one of the highest The dot-com bubble, also referred to as the Internet bubble
economic growth rates in the world. In the 1970s, the Japan- is the time between 1995 and 2000 when speculators
ese government decided to deregulate financial markets so poured money into Internet-based startups in the hope that
as to allow banks to actively seek out potential customers. these starting companies would soon turn into a lucrative
During the mid-1980s, Japan took a loose approach to mon- business. The speculative investments in dot-coms drove
etary policies and resulted increase in money supply and up share markets. The technology-centric NASDAQ Com-
fall in interest rates. The combination of these two actions posite Index rose from less than 1,000 in 1995 to a peak of
was the catalyst for structural change in Japanese economy. 5,408.60 on March 10, 2000.

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