Lost Decades

The Lost Decades are a lengthy period of economic stagnation in Japan precipitated by the asset price bubble's collapse beginning in 1990. The term Lost Decade (失われた10年, Ushinawareta Jūnen) originally referred to the 1990s, but the term expanded as economic troubles continued in the 2000s (Lost 20 Years, 失われた20年) and the 2010s (Lost 30 Years, 失われた30年). From 1991 to 2003, the Japanese economy, as measured by GDP, grew only 1.14% annually, while the average real growth rate between 2000 and 2010 was about 1%, both well below other industrialized nations. Debt levels continued to rise due to the Great Recession, the 2011 Tōhoku earthquake and tsunami, and the COVID-19 recession. Broadly affecting the entire Japanese economy, over the period of 1995 to 2025, the country's nominal GDP fell from $5.55 trillion to $4.27 trillion, real wages fell around 11%, while the country experienced a stagnant or decreasing price level. From 1995 to 2025, Japan's share of the world's nominal GDP decreased from 17.8% to 3.6%. Under deflation, the value of cash increases as time passes. In such a situation, Japanese companies began to cut wages, research and development, and other investments, opting to hold onto cash instead. This tendency, coinciding with the acceleration of the aging population, gradually diminished the competitiveness of the economy and the potential growth rate of the country. The Bank of Japan (BoJ) and the Japanese government have focused on halting the deflation and eventually achieving the 2% inflation target since the early 2000s. However, as deflation persisted, the traditional monetary policy of setting low interest rates to stimulate investment and consumption, which typically causes inflation, became ineffective. This ineffectiveness arose because a nominal rate of 0% effectively meant a positive real rate due to the increasing value of cash. This phenomenon is known as the...