When the cost of money starts to matter again

Summary: For decades, Japan exported cheap money to the world, supporting leverage, valuations and risk-taking. That era is now fading as wages rise, inflation holds and yields move up, signalling a meaningful shift in global monetary conditions. For Indian investors, the next phase will reward steady cash flows and discipline, not broad liquidity or easy optimism. Every market cycle eventually comes down to one simple factor that investors tend to ignore when returns are strong and liquidity is abundant: the cost of money. When money is cheap, many things appear deceptively easy. Risk feels manageable, leverage looks comfortable and future earnings are valued generously. As cycles mature, however, the same assets start being judged differently. Cash flows begin to matter more, balance sheets come under scrutiny and assumptions that once went unquestioned start breaking down. Reality reasserts itself. This shift is now becoming visible in Japan’s monetary policy. For nearly three decades, Japan has operated in a monetary environment that was historically unusual. After its asset bubble burst in the early 1990s, the country entered a prolonged phase of deflation, weak demand and stagnant wages. To avoid deep economic stagnation, the Bank of Japan kept interest rates near zero for years before pushing them into negative territory. When rate cuts failed to deliver results, the central bank aggressively expanded its balance sheet. By the early 2020s, the Bank of Japan’s balance sheet had grown to roughly 750 trillion yen, equivalent to well over 100 per cent of Ja

This article was originally published on January 01, 2026.