From "Japan As Number One" to the Decade of Loss: Japan's 35-Year Lessons

In 1989, 8 out of the top 10 most valuable companies in the world were Japanese. At that time, Nippon Telegraph and Telephone (NTT) had a value greater than the combined top 10 American companies.
35 years later, the picture has reversed: NVIDIA alone has surpassed a $5 trillion market capitalization, larger than the total value of Japan’s 10 largest companies combined.
What has happened?

The Peak Era: When Japan Challenged the United States
In the 1980s, Japan was an icon of efficiency and technology.
Toyota, Honda, Nissan dominated the US auto market. Sony, Panasonic, Toshiba led in consumer electronics. Japan held 50% of the global semiconductor market in 1986.
Ezra Vogel’s book Japan as Number One asserted: Japan was surpassing the US.
American media at the time worried: “Japan will dominate the 21st century.”

The Plaza Accord and the Historic Turning Point
On September 5, 1985, the Plaza Accord was signed between the US, Japan, Germany, France, and the UK.
Goal: weaken the US dollar and strengthen the yen.
In three years, the yen doubled in value. The consequences:
Japanese exports became more expensive. Growth slowed down.
Japan’s central bank sharply lowered interest rates to save the economy. Cheap money flooded the market — but instead of flowing into production, it went into stocks and real estate.

The Bubble and the Crash
The Nikkei 225 index rose from 13,000 to nearly 39,000 points in four years.
Tokyo real estate was valued irrationally. Japan’s total real estate value was many times higher than the US.
Japanese conglomerates bought iconic American assets:
Mitsubishi Group bought Rockefeller Center. Sony bought Columbia Pictures.
Then the bubble burst. Nikkei plummeted and never returned to its previous peak for decades.

“Zombie Companies” and the Lost Decade
Instead of letting the market cleanse itself, banks continued to support weak businesses — called “zombie companies.”
Performance declined. Innovation slowed.
Meanwhile:
Birth rates plummeted. The population aged rapidly. The workforce shrank.
Manufacturing gradually moved out of Japan to Southeast Asia and China. “Made in Japan” was no longer the center of the global supply chain.
Interest rates remained near 0% for decades, enabling global capital to borrow yen cheaply and invest abroad — while the domestic economy stagnated.

Japan Today and the Major Lessons
In 1989: Japan was the second-largest economy in the world.
In 2024: it has fallen to fourth, with a risk of dropping to fifth.
NTT, once the number 1 in the world, is now just a large company but no longer a global leader.
The lesson is not in a single signature.
But in:
Uncontrolled asset bubbles.
Overextended monetary policy.
Delayed structural reforms.
Demographic decline.
History shows:
Economic power is not immutable.
The leading position can reverse within a generation.
From Japan’s story to today’s AI era, every peak contains the seeds of the next cycle.