What causes business cycles? Analysis of the Japanese industrial production data

► We study the Japanese industrial production data from 1988 to 2007. ► Random matrix theory is valid for extracting dominant factors out of noise. ► Combined with Fourier analysis we identify two business cycles of 60 and 40 months. ► These findings show that the major cause of business cycles is real demand shocks. ► The 2008-2009 economic crisis in Japan is caused by an exogenous negative demand shock.