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There were various factors involved to the consequence before the asset price bubble in Japan in 1985.

Plaza accord
Plaza Accord was signed between Japan, the United Kingdom, France, West Germany, and the United States in 1985, aimed at reducing the imbalance in trade between the countries. At that time, Japan had huge trade surplus as Japanese yen was weaker against U.S. dollar, while United States suffered from consistent trade deficit. The reason behind the accord was partially because of the States blaming on the unevenness in the exchange rate between yen and U.S. dollar since most of the Japanese products imported in the States had better quality and cheaper price than the domestic products due to the weaker yen against dollar. After reaching a settlement in Plaza Accord, central banks in participated countries started selling U.S. dollar. In Japan’s case, demands for Japanese yen increased, and Japanese yen was significantly appreciated. In 1985, the exchange rate of yen per dollar was 238. After the foreign exchange intervention followed by Plaza Accord, the exchange rate dropped to 165 yen per dollar in 1986 as yen appreciated. This has impacted export in Japan to the States significantly, and the export almost halved in 1992 after its peak in 1986, whereas trade deficit in United States shrunk after the Plaza Accord and the deficit cleared out in 1991. Due to the appreciation in Yen, Japanese companies suffered from huge loss in exporting as they had to sell the products in the States at higher prices than before to make profit. thumb|"Plaza Accord"

Effect to the economy
Appreciation in yen accelerated than expected because people purchased yen and sold US dollar to make profit. The further appreciation in yen shook the economy in Japan because the main source of economic growth in Japan was the export surplus. The GDP growth rate dropped from 6.3% in 1985 to 2.8% in 1986, and Japan experienced recession. To respond to this recession, the government shifted the focus on increasing the demands within the country so that domestic products and services can be consumed in the country instead of exporting to overseas, which would increase domestic consumption as well.

To access the effect of Plaza Accord in long run, it did not succeed in equalizing the trade imbalance between Japan and the United States. Despite the fact that there was no major change in exchange rate of Yen and US dollar, export surplus in Japan began to rise and trade deficit in the States started to arise again in 1990s. Overall, Plaza Accord directly led to appreciation in Yen, and it incentivized in lowering the discount rate in 1986 and 1987, which is considered to be one of the direct causes of asset price bubble.

Financial Liberalization
When the United States was in recession in early 1980s, the U.S. government pointed out that the imbalance of exchange rate of U.S dollar and Japanese yen as the cause of recession, though the fundamental issue in recession was the fall in competition of domestic producers. To achieve depreciation of the U.S. dollar and appreciation of the Japanese yen, the United States focused on removing financial restrictions in Japan and increasing the demand for the Japanese yen. The financial restrictions in Japan at that time prevented for Japanese yen to be purchased and invested freely from foreign countries. In 1983, the United States and Japan committee for Yen and U.S. dollar was established to reduce the friction in exchange rate of Japanese yen and U.S. dollar. Through this committee, the United States strongly demanded Japan to deregulate and ease restrictions on financial and capital transactions. As a result, in 1984, restriction on future exchange transaction was removed in Japan, and it became possible for not only banks but companies to be involved in currency trading. Later in the same year, regulation on converting foreign funds into funds Japanese yen was also eliminated. The abolition of financial restrictions in Japan opened up Japanese financial market to overseas, and the demand for Japanese yen increased accordingly. At the same time, there was increasing number of loans from banks to companies on real estate investment purpose in 1985. It partly became the cause of asset price bubble as financial liberalization increased the investment in real estate by companies even before monetary policy took place in 1986.

Monetary Policy
The central bank reduced discount rate from 5% to 2.5% in the period from 1986 to 1987. This event was the direct cause to asset price bubble as reduced discount rate facilitated an increase in asset prices.

The central bank reduced interest rate five times in total. Firstly, it was reduced from 5% to 3.5% by three times from January to April in 1986. The economy recovered from recession significantly after this reduction in interest rate in 1986. Stock prices rose followed by the recovery. The central bank decided to reduce the interest rate further in late 1986 and early 1987. It dropped to 3% in November in 1986 and to 2.5% in February in 1987. This created excess funds in companies as interest rate was even lower than before, and they started investing these excess funds in real estate and stocks to create more profit rather than depositing the money in banks. As those purchases of lands and stocks were made on purpose to sell them at higher prices, the cycle of buying and selling repeated, and it increased the land prices exponentially. In addition, people believed that land prices would not fall (Tochi Shinwa) because Japan’s area of land is limited when the land price started to go up, and this belief spread widely across the country escalating the cycle of buying and selling of lands. The average of land price started increasing in 1985 and its growth continued until 1991. Meanwhile, investors and companies invested in stocks as an alternative of land. Stock price of Nikkei almost tripled from 1985 to 1990.