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Japan as America's next enemy
Anxiety builds
For seven decades after World War II, American attitudes toward Japan were nowhere near admiring. Japan was an enemy state until 1945, and then it was seen as a developing country being rebuilt. By the seventies and eighties, anxiety had grown over Japanese electronics, cars, and business practices, and over the chance that Japan would pass the United States as the world's number one economy.
The tension reached a Michael Crichton level in the late eighties and early nineties: his novel Rising Sun cast the Japanese as the villains, and plenty of Americans wondered whether Japan was the next bad guy.
The bubble bursts
Then Japan's economy stalled. Easy-money policies in the late eighties had fueled a boom in stock and land prices and speculative investment, the bubble economy, and the nineties brought recession. Americans felt almost relief. Japan still looked uncool, a country with traditional culture and plenty of copies of Western culture, and not especially interesting.
Why did Americans fear Japan's economy?
By 1968 Japan had become the world's second-largest economy, behind only the United States. Through the 1980s its trade surplus with America grew, and Japanese automakers took a growing share of the US car market. In 1989 Sony bought Columbia Pictures and Mitsubishi Estate bought a majority stake in Rockefeller Center. The property company that owned Rockefeller Center later filed for bankruptcy in 1995.
How did Japan's economy rise so fast?
Economic historians estimate that Japan's economy grew close to ten percent a year through the 1960s. The Ministry of International Trade and Industry steered credit and policy toward steel, shipbuilding, and later electronics and cars. High household savings also fed investment. Japan passed West Germany to become the second-largest economy in 1968, and it held that position until China passed it in 2010.
What caused the bubble to burst?
Japan's stock index, the Nikkei 225, peaked at 38,915 on December 29, 1989. The Bank of Japan raised interest rates starting in 1989, and the government restricted real estate lending in 1990. The Nikkei lost roughly sixty percent of its value by 1992, and land prices kept falling for years afterward. The index did not close above its 1989 peak until February 2024.
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