In 1989 Japan had 32 of the world's 50 biggest firms
At the end of the 1980s, 32 of the world's 50 most valuable companies were Japanese. By 2018 only Toyota remained on that list. Between those dates lay a bubble, a crash and three decades of stagnation so stubborn that the Lost Decade had to be renamed the Lost 20, then the Lost 30 Years.
The bubble was partly engineered. Through a practice called window guidance, the Bank of Japan handed banks lending quotas, and land and share prices roughly tripled during the 1980s. Paul Krugman described banks lending more carelessly than any others in the world. In late 1989 the central bank sharply raised rates to cool speculation, the stock market crashed, and within a few years land and share prices sat 60% below their peak.
The clean-up made things worse. Banks stuffed with bad loans were propped up with public money and allowed to delay booking their losses, becoming zombie banks that kept feeding credit to zombie companies too indebted to do more than survive. Firms facing falling prices hoarded cash and cut wages, research and investment. Once prices fall, even a 0% interest rate is effectively positive, a trap known as the zero lower bound, and interest rates have stayed under 1% since 1994.
The damage piled up. Japan's share of world nominal GDP fell from 17.8% in 1995 to 3.6% in 2025, and GDP per head dropped from the third highest on the planet to 36th. More than a third of the workforce was temporary by 2009. Government debt, pushed up by stimulus spending every year since 1991, reached about 240% of GDP by 2013, the highest anywhere.
Shinzō Abe's Abenomics from December 2012, aggressive monetary easing from 2013 and a negative policy rate of −0.1% from 2016 brought only mild inflation. The global price surge of 2021 to 2023 finally pushed inflation above 2%, and in February 2024 the Nikkei 225 beat its bubble-era peak. Yet the yen hit a 37.5-year low in July 2024, Germany overtook Japan's economy in nominal terms, and economists still argue over whether the stagnation has truly ended.
Source: Lost Decades
