01 January 2009

2008/09 Rybczynski Prize Essay

Japanese lessons for an Anglo Saxon banking crisis

This paper highlights why the collapse in equity and asset prices in Japan led to a prolonged period of slow growth, multiple recessions and a repeated inability of the equity market to sustain a meaningful rally. The discussion also highlights the similarities and differences with the current situation in the US and other countries.

It has been argued in some places that, it was not the collapse of the equity market in Japan that led to the “lost decade” but the inappropriateness of the policy responses that followed the collapse. As a result, some argue that the Japanese experience is not relevant to today. This is a highly contentious argument. Japan’s experience has many similarities with recent developments in the US and Europe and can be used as a template to assess investment strategy in an environment of failing banks and falling asset prices.

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