The strength of Japan's business in the last half of the 20th century was standardized mass production, in businesses like autos and electric appliances. There the old standard-bearers are less competitive. Ironically, given the competitive advantage they once enjoyed, they are now more subject than ever to competition from imports. Microeconomic failures, in other words, have produced macroeconomic disaster. Panic-stricken investors pull their money out of the country.
Interest rates soar.
The ensuing run on the yen leads to a collapse of the currency and the stock market. Because there is no fiscal capacity to restimulate the economy, it goes into free fall. For one thing, the Japanese model failed. A system that once produced patient capital for long-term goals has instead produced a declining return on assets and equity, excess industrial capacity, opaque corporate governance, and rigid markets for land, labor, and capital. Government planners couldn't outthink the millions of private decision makers who so improved the U.S. economy.