Part 5/9:
The fallout culminated in a banking crisis during the late 1990s, exacerbated by the Asian financial crisis. Though Japan had large foreign reserves enabling it to weather the storm better than its neighboring economies, the scars of the real estate collapse remained deeply entrenched.
Navigating Through Deflation
As Japan advanced into the new millennium, it found itself entrenched in a cycle of deflation. Unsustainably high levels of public debt shifted onto the government balance sheets, leading to diminished consumer spending and stagnation. The prevailing expectation among consumers was that prices would fall further, prompting a culture of saving over spending. This shift created a vicious cycle of declining demand, as fewer goods were sold, and production slowed.