Ushinawareta J!nen: Japan’s Lost Decade This paper aims to provide a discussion of the causes behind Japan’s Lost Decade – a marked slowdown in economic growth spanning ten years (1990-2000), when it experienced protracted slow growth and deflation (Werner, 2005). In the sections that follow, demand-side and supply-side causes will be discussed. This paper will also discuss inherent characteristics that could have contributed to the stagnation and conclude what factors were most important. One explanation behind Japan’s lost decade can be attributed to the bursting of the asset bubble, which caused a “balance-sheet adjustment” where the “erosion of capital bases” led to a fall in demand as people grew more cautious (Okina, Shirakawa, & Shiratsuka, 2001). Yoshikazu (1993) discusses the stagnation as caused by a “stock-adjustment recession”, in which he attributed reduced demand to not just asset deflation, but also excess inventory. Simply put, the frenzied buying during the boom logically meant a subsequent decline in demand, as consumers were not willing to buy more so soon. Another popular theory behind Japan’s lost decade concerns a credit crunch, i.e. a supply-side factor. While some thought that there was a credit crunch in that banks needed to reduce size of loans to meet the equity capital regulations (Yoshinori, 2000) following the bursting of the bubbles, Yoshikawa (2002) maintains that it was more of the fall in demand for bank loans due to declining profit opportunities than the reluctance of banks to lend money. In fact, this “credit crunch” was only shown to have taken effect circa 1997, following a huge fall in banks’ capital (Watanabe, 2005). Hence, this theory could not have been integral in causing the stagnation. The government’s failures in efficient and effective policies also contributed to the stagnation. Hutchinson, Westermann & Ito (2006)