Japan
What is it?
A country comprised of several islands located in the South Pacific, approximate population 128m.
What's it got to do with the financial crisis?
Japan doesn't have a great deal to do with the credit crunch directly, although banks like Sumitomo Mitsui have unquestionably suffered as a result of it.
Instead, it's Japan's so-called 'Lost Decade' of the 1990s which excites emotions when mentioned in the same breath as the credit crunch. As a result of the crunch, there are fears that America's banks and economy could be about to suffer the same fate that Japan's did during those 10 years.
In the run-up to 1989, Japan experienced a huge property bubble: between 1980 and 1990 the price of a condominium in Tokyo nearly tripled. At the height of the bubble, about 10 square feet in the upmarket Ginza shopping district cost more than $200k, according to the Wall Street Journal.
The bubble has been blamed on the proliferation of new products like derivatives, which made credit more easily available. Interest rates were low and there was an eerily familiar feeling that the good times would go on forever.
It all came to an end in 1990, when the Bank of Japan deliberately popped the bubble by raising interest rates from 2.5% to 6% over 15 months. Over the next 10 years, property prices fell as much as 70% and banks made huge losses on bad loans to real estate speculators.
Because many of these losses were at subsidiaries of main banks, it was difficult to gauge how bad the situation was. Uncertainty made it difficult for Japan's banks to raise capital. At the same time, individuals further depleted banks' capital reserves by withdrawing their deposits. As a result, banks stopped lending - both to each other and to Japan's companies.
Sound familiar?
Japan is by no means out of the woods. Its economy suffered a severe crisis in the later months of 2008 and, while it started pulling out of its recession in August 2009, has been largely stagnant for nearly 20 years.
For further reading, try the New York Times and The Economist.
Last updated on 7 September 2009.
