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The Lost Decade (失われた10年 Ushinawareta Jūnen?) is the time after the Japanese asset price bubble's collapse (崩壊, hōkai) within the Japanese economy, which occurred gradually rather than catastrophically. It consists of the years 1991 to 2000.[1]

The strong economic growth of the 1980s ended abruptly at the start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fueled a massive wave of speculation by Japanese companies, banks and securities companies. A combination of exceptionally high land values and exceptionally low interest rates briefly led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and securities.

Recognizing that this bubble was unsustainable, the Finance Ministry sharply raised interest rates in late 1989. This abruptly terminated the bubble, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks being bailed out by the government.

Michael Schuman of Time Magazine noted that banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further bailouts, which led to an economist describing Japan as a "loser's paradise." Schuman states that Japan's economy did not begin to recover until this practice had ended. [2]

Eventually, many became unsustainable, and a wave of consolidation took place, resulting in only four national banks in Japan. Critically for the long-term economic situation, it meant many Japanese firms were burdened with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and has been for several years, and despite this credit is still difficult to obtain[citation needed].

This led to the phenomenon known as the "lost decade", when economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life was muted, however. Unemployment ran rather high, but not at crisis levels. This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle[citation needed].

Despite the economic recovery in the 2000s, most of the conspicuous consumption of the 1980s, such as spending on whiskey and cars, had not returned.[3] This was due to the traditional Japanese emphasis on frugality and saving, and also because Japanese firms that had dominated the 1980s, such as Sony and Toyota, were fending off heavy competition from rival companies based in South Korea and Taiwan. Most Japanese companies replaced their work force with temporary workers who had no job security and fewer benefits, and these non-traditional employees now make up over a third of Japan’s labor force.[4]

On February 9, 2009, in warning of the dire consequences facing the United States economy after its housing bubble, U.S. President Barack Obama cited the "lost decade" as a prospect the American economy faced. [5]

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