Japanese Stock Market Crash 1989
In May 1989 the Bank of Japan began to raise its discount rate from 2.5% to counter a perceived threat of inflation. The original rate had helped propel the Nikkei 225 index from 11,500 as recently as 1984 to about 38,900 by 1989. The discount rate stood at 6.0% by the end of 1990, and the Nikkei index fell below 9,000 by 2002, shedding over 75% of its peak value.
Real GDP growth slowed significantly post-1989 as the stock market crash was accompanied by a parallel decline in real estate prices.
The resulting slack in the economy propelled interest rates down very close to the 0% floor.
The original threat of inflation turned into deflation.
