Why did Japan's boom turn into the "lost decades"?

Because a bubble in land and shares burst, and the recovery that followed was slow and disputed. In the late 1980s Japan's property and stock prices were hugely inflated. When the Bank of Japan sharply raised interest rates in late 1989, the bubble burst, and the economy entered a long period of stagnation that people call the Lost Decades.

The bubble was real. It ran from 1986 to 1991, with real estate and stock prices greatly inflated. After the yen strengthened, policymakers cut the discount rate to as low as 2.5 percent by early 1987, and money was cheap. The Nikkei 225 reached what was then a record high of 38,957.44 on 29 December 1989. At their peak, the grounds of the Tokyo Imperial Palace were estimated to be worth more than all the real estate in California.

The fall was steep. By August 1990 the Nikkei had fallen to half its peak. It was 14,309 in August 1992 and reached a post-bubble low of 7,862 in March 2003. Banks were bailed out and allowed to postpone recognising their losses, which turned them into what are called zombie banks.

The aftermath was long. From 1991 to 2003 GDP grew only 1.14 percent a year, and about 1 percent a year from 2000 to 2010, well below other industrialised nations. Under falling prices cash gains value, so companies cut wages and investment and held on to cash. Many replaced workers with temporary staff, who made up more than a third of the labour force by 2009.

Economists still debate why the stagnation lasted so long, and the explanations differ rather than add up to one agreed answer.