HistoricalJapan · Late 1980s to early 1990s
Japan: the collateral loop
- First arrow: higher asset prices make collateral worth more.
- Second arrow: collateral worth more supports more credit.
- Third arrow, back to the start: more credit can push asset prices higher again. When prices fall, every step runs in reverse. This is a possible mechanism, not a fitted model and not a proof about any particular loan.
More valuable collateral can support more borrowing.
The loop can turn the other way.
A building can back a loan. Raise its valuation and it may back a bigger one. Use that loan to buy more property, and borrowing feeds the market that supplied the valuation. Falling prices can reverse the process.
Ito and Iwaisako examine Japan's stock and land prices alongside lending and collateral, including partial explanations based on fundamentals. Stocks and land followed different timelines and don't fit one neat rise and fall.
Follow the loop, one arrow at a time
First arrow: higher asset prices make collateral worth more.
Second arrow: collateral worth more supports more credit.
Third arrow, back to the start: more credit can push asset prices higher again. When prices fall, every step runs in reverse. This is a possible mechanism, not a fitted model and not a proof about any particular loan.
A qualitative, research-attributed mechanism. No land-price index, stock-price level or headline monetary total is approved for this entry, and none is shown. The cited findings are the authors' own, not necessarily the Bank of Japan's official position. Late-1989 stock-price growth is distinct from land-price increases in 1990; the two markets are not given a shared peak date. No claim is made that later Japanese economic outcomes all followed from this episode.
Sources
- Explaining Asset Bubbles in Japan, Monetary and Economic Studies 14(1) — Takatoshi Ito and Tokuo Iwaisako, Institute for Monetary and Economic Studies, Bank of Japan. The authors' abstract, findings (i) to (iv): increased real-estate lending, land-collateral relationships, partial fundamental explanations, and the distinct late-stage timing of stock and land prices. The findings are the authors' own, not necessarily the Bank of Japan's official position. No numeric Japanese price series is used.
These historical figures stay separate from the running debt comparison. Source review recorded: 2026-09-13.