For the better part of the 20th century it was bright in the Land of the Rising Sun. Japan had seen multiple decades of largely uninterrupted economic expansion between the Second World War and the end of the Cold War — and was aptly dubbed the "economic miracle". However, for a brief period between 1986 and 1991 it forgot the importance of sunscreen. A period of extreme credit extension saw equity and house prices triple, which caused one of the largest asset bubbles in modern history. Then came the storm. Asset prices started to correct in the early 1990s and continued to fall over the next decade — a period of stagnation known as the "Lost Decade". At the same time, collateral values declined (borrowers could borrow up to 90% of their real estate values, which subsequently halved).
Under such severe deflationary stress, many borrowers were unable to make their loan repayments. This in turn led to a bad-debt problem for Japanese banks, with bad debt write-offs peaking in the...
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