25 March 2024 — The End of Negative Rates: Japan Closes the Era of Free Money

For eight years, Japan was the last major economy with negative interest rates. On Tuesday 19 March, that ended. Bank of Japan governor Kazuo Ueda announced the first rate rise in seventeen years, from minus 0.1% to a range of zero to 0.1%.¹ Tiny in numbers, enormous in meaning: for the first time since 2007, a deposit at the Bank of Japan will earn a positive return. The era of global negative rates is over.

Remarkably, the yen has weakened rather than strengthened, touching 151 per dollar — a 34-year low. The hike was widely expected, and Ueda’s accompanying remarks were unusually dovish. Faced with a yen paying close to zero and a U.S. dollar paying more than 5%, investors continue to borrow cheaply in yen and park the money elsewhere — the “carry trade.” It is one of the most important and least-discussed forces in global markets today.

March is also the month Bitcoin broke its record. On 5 March, it traded above $69,000 for the first time since November 2021, and has since reached $73,000.² The immediate trigger is the January launch of the first U.S. spot Bitcoin ETFs. More interesting still is that the oldest investment asset — gold — is doing exactly the same thing, breaking $2,100 per ounce this month.³ Central banks in China, India, Turkey, Poland and several Gulf states are diversifying away from dollars into gold. When investors simultaneously bid up an ultra-modern digital asset and a 5,000-year-old metal, it is fair to ask what they are worrying about. The answer, most likely, is the value of ordinary money itself.

Japanese shares, too, have finally beaten their 1989 bubble-era record, with the Nikkei 225 crossing 40,000 this month. Drivers include corporate-governance reforms forcing companies to return cash to shareholders, a weak yen that boosts exporters, and Warren Buffett’s Berkshire Hathaway, which has been buying Japan’s big trading houses.⁴

The lesson is about the quiet costs of the decade before. Negative interest rates, introduced as an emergency measure after 2008, outstayed their welcome and have left a legacy of inflated asset prices — houses, shares, luxury goods, Bitcoin — because money earned nothing for so long. The path back to normality is always going to be bumpy. For an ordinary saver, the question is: in a world where cash is finally earning a real return again, how much of your money do you actually need in speculative things?