In 1990, very few economists predicted that the stock market crash in Tokyo would trigger more than a decade of economic recession and stagnation. Unlike most developed economies, Japan had remained a dynamic economy over the 1970s and 1980s, experiencing neither stagflation nor rising unemployment even though economic growth had slowed. From 1973 to 1990, Japan grew at a rate of 3.9 per cent compared with the average of 2.5 per cent in Organization for Economic Co-operation and Development (OECD) countries and maintained close to full employment, with a 2 per cent unemployment rate.

The Japanese institutional setting at the heart of this sustained period of growth was based on: i) a wages policy based on life employment and progressive income to ensure the support and the involvement of employees in the achievement of competitiveness; ii) an accommodating financial system that adjusted its profitability objectives to firms' performances and that formed tight links with borrowers; iii) governmental coordination of private sector strategies and expectations (Boyer, 2004).

Nevertheless, the 1980s were characterised by a growing disequilibrium linked to credit expansion and financial bubbles. The belief that Japanese organisations were able to dominate key industries led to a large expansion of credit. In reaction to these profit perspectives, financial assets, in particular real estate, attracted new investors and led to a large asset price inflation. The evolution of two factors modified the Japanese institutional setting.