Japan discovers the price of money

**Akshara** (0:04)
In today's episode, we'll break down two important stories. First, we'll talk about Japan discovering the price of money, and then we'll talk about the tower of sovereign debt getting more twisted. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, today is Thursday, 18th June. Before we start the show, we'd like to tell you about a new podcast we just shot as part of our new initiative Subtext. So India's EV adoption is now less dependent on the vehicles and more dependent on everything it plugs into, like the charger, the connector, the software, the protocols that charging networks use to talk to one another, and most importantly, the aging Indian electricity grid beneath all of it. Now to make sense of all of this, we spoke to Zohra Khan, founder and CEO of IPEC, which designs and manufactures EV chargers for India's leading two- and three-wheeler OEMs to understand what it actually takes to build charging infrastructure at scale in India. The link to the podcast is in the description below. Coming to the first story.
At the end of March 2025, Japanese households held more than half their financial assets in cash and bank deposits. Globally, this is an unusual way to hold one's wealth, at least in advanced economies. In the United States, for instance, cash makes up just 11.5% of household financial assets. Meanwhile, over 40% of American wealth is held in equities. Japanese households, meanwhile, had invested just over 12% of their financial assets in equities. In fact, even Indian households hold less cash and more equity, even though ours is a far less developed economy.
So, there is a reason for this. In most of the world, cash keeps bleeding its value, not down by inflation. Idle money loses its purchasing power, and you can only protect the value of your wealth if you invest it in something productive. But Japan learned a different lesson from history. Its financial life was frozen in time. For decades, prices barely moved, wages barely increased. Your bank would barely pay any interest for the money you deposited with them, but that was alright. At least it kept its value. Nothing else could promise that. Now, most Japanese had lived through an apocalyptic collapse in their stock and property markets back in the 1980s, and their economy never recovered. If you invested in the Japanese stock markets in 1989, you wouldn't see a single yen in returns until 25 years later in 2024 So in an economy like this, rationally, cash was the only safe option. And as it remained stuck year after year, that rational choice became culture. And that era lasted for three decades. Holding cash for all those years came with no cost. And that fact shaped Japanese financial life. How households saved, what firms charged, how the government borrowed, and what the yen meant for outsiders. And then with the chaos of recent years, inflation returned. And with that, interest rates finally returned as well.
So what is the return of the price of money due to a country that had forgotten all about it? Nobody can tell you for sure. So Japan's economic stupor was born out of a period of irrational excitement. In the late 1980s, Japanese stock and land prices had become a national mania. And when that bubble was eventually punctured, the floor fell off. Assets collapsed in price, banks were held with mountains of bad debt, firms stopped investing. An economy that once threatened the United States dominance, lost all its buoyancy. The country suddenly found itself in a waking nightmare. The economy's momentum had stalled to a point where people refused to invest even when money was practically free.
Prices were falling to a point where opening a business no longer made sense. Whenever there was a flutter of optimism, disasters like the global financial crisis or the 2011 Tohoku earthquake broke its back again. Ordinary monetary policy lost its power. Now, Japan tried everything it could to get out of this bind. And by 1999, interest rates were zero. In the 2000s, it began quantitative easing, flooding banks with money by buying banks' assets. In 2016, it even tried negative interest rates, effectively punishing people for keeping money idle. And then it began to control the rate on long-term government borrowing as well, buying 10-year bonds indiscriminately from the market. Nothing worked. A new normal had taken hold. So brutal was Japan's bubble burst that companies fundamentally changed their character. Japan went into something the economist Richard Koo calls balance sheet recession. Businesses no longer behave like profit-making machines. And for 10 straight years, all their cash went into paying off debts and cleaning up their balance sheets. Debt, meanwhile, became taboo. Companies would not borrow to expand their operations, even if you offered them that money for free.