Now, finally, the madness is coming to an end - with side effects that could punish an already depressed real-estate market in the United States. The Japanese land bubble - a speculative mania that sent the value of everything from modest homes to the land surrounding Tokyo’s Imperial Palace Grounds skyrocketing (charts)-is beginning to burst. Thanks mainly to the current high interest-rate policies of the Bank of Japan, land prices in some of Japan’s urban neighborhoods are actually coming down. In prime areas for both commercial and residential property, the upward price momentum has at the very least been blunted. A widely feared crash may still be avoided, but make no mistake: “There’s been a clear downshift,” says one influential Japanese banker. “The boom is long gone.”

In Tokyo that is now obvious. Many real-estate firms are struggling to pay off huge debts. Last fall an embarrassed Sumitomo Bank absorbed a troubled real-estate company it had funded massively and helped consolidate its $2 billion worth of debts. Still other big land buyers are simply not paying debts at all. Earlier this month the Bank of Japan reported that 69 real-estate firms went bankrupt in February, triple the number of a year ago.

The effect of the slowdown in land prices will hardly be confined to Japan. In the latter half of the 1980s, aggressive, upstart firms like EIE International Corp. borrowed heavily against inflated properties in Japan, converted the strong yen into cheap dollars and bought heavily in the United States. Japanese companies bought an estimated $53 billion worth of U.S. properties between 1985 and 1990. Today, with the dollar even cheaper and U.S. commercial real-estate prices down sharply in some markets, many of those purchases “are massively underwater,” says one lawyer involved in many of the deals.

That means now is the worst possible time to sell, but sell is what some Japanese investors are forced to do. Banks are pressing highly leveraged developers to come up with payments on projects back home, so they’re beginning to unload properties abroad in desperation. Five years ago, says Hugh Canaway, a Baring Securities real-estate analyst in Tokyo, “everyone in the U.S. was screaming, ‘Oh my God, the Japanese are buying all the prime real estate in our market.’ Now, everyone’s starting to scream, ‘Oh my God, the Japanese are selling all the prime real estate in our market’.” Two cases in point, according to reports in Tokyo’s press: EIE and Kumagai Gumi are said to be ready to dump U.S. properties for which they paid a total of $7.5 billion.

A full-scale bust would have much greater global impact. A 50 percent plunge in nationwide prices, according to one study, would render worthless one fifth of the $350 billion Japan’s banks have lent real-estate companies. The world is already feeling the effects of Japan’s sharp cutback in overseas lending, but a real-estate crash could make today’s credit crunch seem like the good old days. It would also produce another rout in Japan’s equities market, which would not be good news for stocks in the United States and Europe.

If most analysts still believe a crash can be avoided, it’s due to the peculiarities of the Japanese market. Optimists contend it’s not much of a market at all, since even when money is loose there isn’t much buying and selling. That’s mainly because the tax system places a light burden on holding onto land, but is punitive when it comes to selling at a capital gain. The point is crucial, because a crash comes only when there is a stampede of desperate sellers.

Japan’s banks, unlike America’s, are also better equipped to contain the damage. Although weakened, most major banks are part of huge financial and industrial groups that may be able, if necessary, to find places “to warehouse distressed property for a while,” as Jardine Fleming Securities analyst Bernard Siman puts it. If that’s true, it will be a rare instance in which Japan’s way of doing business, viewed from abroad, turns out be a source of relief rather than frustration.

Value 1986: $250,000 1990: $400,000

Value 1986: $198 million 1990: $330 million

Value 1986: $63 billion 1990: $105.7 billion