Land and Stock Prices in Japan

TLDR: In this article, the authors discuss the rise of Japanese stock and land prices in the past four decades and their dramatic decline in the early 1990s, and discuss the role of land values in the Japanese stock market.

Abstract: In late 1991, the total land value in Japan was estimated at nearly $20 trillion. This was more than 20 percent of the world's wealth, or to put it in some other contexts, about double the world's equity markets or half again as large as the world's bond markets. Japanese land was then valued at about five times that of the United States; the land under the Emperor's Palace, which is about three-quarters of a square mile, was estimated to be worth about the same as all the land in California or in Canada. Real estate assets of Japanese corporations grew by $2.8 trillion from 1986 to 1988, an increase in valuation roughly equal to the size of the Japanese gross national product. An equally dramatic rise in stock prices accompanied the rise in land prices. At its peak in December 1989, the Japanese stock market had a value of about $4 trillion, which was about 44 percent of the world's equity market capitalization. To put that figure in perspective, the value of the equity on all the stock exchanges in the United States in August 1992 was less than $5 trillion. But then, from its peak in December 1989 to August 1992, the Japanese stock market fell by over 60 percent. Various indices of speculative land values fell a similar amount. Meanwhile, other land prices—industrial, commercial, residential, as measured by various indices—fell 15–20 percent. This paper discusses the rise of Japanese stock and land prices in the past four decades and their dramatic decline in the early 1990s. To what extent can