Bank of Japan hits zero
The Bank of Japan became the first major central bank to cut its overnight rate to zero. The zero interest rate policy (ZIRP) was a response to the persistent deflation that had followed the 1989 asset bubble collapse. Every subsequent major central bank eventually copied the tool. The Fed first went to zero in December 2008, the ECB in 2016.
The Bank of Japan's ZIRP was initially explained as a short-term emergency measure. With brief interruptions, it lasted 21 years. Japanese academic economists have spent that entire period debating whether ZIRP accelerated the recovery or prolonged the deflation. The debate has not ended, and the answers available in 2026 still depend on which assumptions you start with.
06 · Japan's Lost Decade
On the last trading day of 1989, the Nikkei 225 closed at 38,957. Japanese corporate real estate was valued so highly that the grounds of the Imperial Palace were said to be worth more than all the real estate in California. Over the following twenty years, the index lost 82% of its value. Recovery to the 1989 peak did not happen until 2024 — thirty-four years later.
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