For as long as most working professionals can remember, money has cost nothing. Not literally nothing, of course, but close enough that the difference didn’t matter. If you’re under 40 and work in finance, startups, or investing, you’ve spent your entire career in a world where capital was essentially free. That world is now ending, and a chart of Japanese 30-year bond yields tells the story better than any expert commentary.
Japan’s 30-year government bond yield hit 3.5%, the highest level ever recorded. To understand why this matters, you need to know that Japan didn’t just participate in the global experiment with free money; it invented it.
In 1999, while the rest of the world was partying like it was, well, 1999, Japan introduced a zero-interest rate policy. They were the pioneers, the true believers, the ones who held the faith longest. For a quarter century, Japan was the world’s ATM.
Hedge funds, corporations, and speculators of every stripe borrowed in yen at near-zero rates to fund investments elsewhere. It was called the carry trade, and it was practically a licence to print money.
The chart I’m looking at shows Japanese 30-year yields bumping along between 0.5 and 2.5% for most of the past 25 years, actually dipping below 0.5% as recently as 2016. And now? A vertical line upward to levels not seen since before most readers started their careers.
If even Japan – the most committed practitioner of ultra-loose monetary policy in human history – cannot sustain the fiction of free money, then the era is definitively over.
Why should Indian investors care about Japanese bond yields? Because the free-money era shaped everything about how modern business and investing work, those assumptions are now being stress-tested.
When capital costs nothing, it’s treated as if it were nothing. The entire startup playbook of the 2010s was built on this premise: raise money you don’t need, grow at all costs, worry about profits later (or never). WeWork could burn billions on fancy sofas and free beer. Uber could subsidise every ride below cost.
Crypto could promise infinite returns from nothing but belief. When your cost of capital is zero, any business model can be made to look viable on a spreadsheet.
Indian investors saw this logic play out at home. The spectacular valuations of companies that had never turned a profit – and in some cases, had business models that made profitability structurally impossible – only made sense in a world where capital had no cost.
Respect for capital
When ‘digital plays’ raised billions despite rivers of red ink, the implicit assumption was that money would remain cheap forever. Growth today, profits eventually, viability never questioned. That assumption is now being questioned quite brutally.
Here’s a phrase that captures what went wrong: respect for capital. When interest rates are zero, there is no respect for capital. Founders raised funding rounds they didn’t need because the money was there. Corporations borrowed to buy back their own stock because it was cheaper than equity. Governments ran deficits without consequence because bond markets never punished them.
An entire generation of finance professionals has never worked in an environment where capital had a real cost. They genuinely don’t know what normal looks like.
Japan held out for a long time: the last place faithful to the free-money religion. However, they finally lost that faith. The last wicket has fallen, the innings is over.
For investors, this means the tailwind that lifted all asset prices over the past fifteen years is now a headwind. Businesses will actually need to generate returns on capital, not just growth in users, eyeballs, or gross merchandise value.
Equity valuations must be justified by actual cash flows, not by narratives about total addressable markets. The companies that survive and thrive will be the ones that always understood that capital has a cost and treated it accordingly.
For disciplined investors who never abandoned fundamentals, those who kept asking irritating questions about profitability and return on equity, while everyone else chased growth stories, this is actually good news. The game is returning to one they know how to play. The free money distortion is unwinding. Reality, as it always does, is reasserting itself.
Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm. Views are personal.
