TOKYO -- Given Japan's outsize public debt, holding an IOU from its government might seem like a risky proposition that would require the promise of a substantial reward.
But this week, as global economic fears drove money into safer assets, investors in Japanese debt began essentially performing that service for free.
On Tuesday, the yield on Japanese 10-year bonds, the benchmark of government borrowing, dropped to zero for the first time. They quickly fell into negative territory, meaning some investors were buying bonds despite knowing that if they held them until maturity, they would come away with less money than they paid.
And on top of that, a strong yen dragged Japanese stocks down more than 5 percent in the worst trading day this year.
The reversal of bond-investor logic flows from the introduction of negative interest rates by the central bank, the Bank of Japan, experts said. The bank's governor, Haruhiko Kuroda, surprised markets on Jan. 29 by announcing that it would start charging private-sector lenders a penalty of 0.1 percent to hold onto their excess cash, or reserves.
The move was intended to bolster the Japanese economy, but the flight by global investors to perceived safe assets is complicating the effort.
Like savers depositing money at a local bank, banks keep their own unused cash at the central bank. The interest they earn on those reserves -- or do not earn, as the case may be -- helps determine the cost of other kinds of borrowing and lending.
The Bank of Japan's new policy is intended to stimulate the economy, which narrowly avoided falling into recession last quarter. By making it unprofitable for banks to hold cash, Kuroda hopes to encourage them to lend more freely and get businesses and households to spend. He also wants to give a lift to consumer prices, which have been sagging after a welcome but short-lived bout of inflation.
In other countries that have introduced negative interest rates, such as Sweden and Switzerland, government bond yields have also been pushed below zero.
Masamichi Adachi, a former central bank official who is now an analyst at JPMorgan Chase, said that the reversal in bond yields was bound to happen eventually, given the negative interest rate policy, but it occurred more quickly than many expected. The imposition of negative rates on bank reserves will not even take effect until next week.
The speed, he said, was because of a factor that is complicating Kuroda's stimulus program: a rush by global investors to buy the yen, which is seen as a safe currency at a time of economic uncertainty. The resulting rise in the yen's exchange rate has hurt the Japanese stock market and darkened the outlook for inflation, canceling out much of the efforts of the Bank of Japan.
"The China slowdown, falling oil prices, fears about a U.S. recession -- the headwinds facing the [Bank of Japan] are very strong," Adachi said.
One goal of negative interest rates is to redirect investors' money from bonds into more theoretically productive assets such as property and stocks. But in at least one sector, finance, the policy has deepened the equities rout. Banks are reluctant to pass the costs of negative rates on to depositors, for fear they will pull their money out of their accounts. Instead, the banks are absorbing the penalties themselves, cutting into profits.
On Tuesday, the yen strengthened to a little over 114 to the dollar, about 10 percent stronger than its most recent low. That is bad news for the many Japanese companies that earn revenue outside Japan: the stronger the yen, the less their foreign-currency earnings contribute to profits.
The Nikkei 225-stock average dropped 5.4 percent Tuesday, its biggest one-day drop since May 2013, as investors reacted to the potential blow to corporate earnings.
Easy money from the central bank had kept the yen relatively weak since 2013, but a reversal appears to be gathering pace despite the central bank's latest move.
Japan's status as a haven for investors can seem puzzling. It is carrying the heaviest government debt load in the world, at the equivalent of about 2 1/2 years' economic output. But most experts are sanguine about the risks. The debt is still amply funded by local savings. And taking the private sector into account, Japan as a whole is a major net creditor, not a borrower. That greatly reduces the risk of instability.
For now, the bigger danger appears to be that efforts to get its economy growing again will stall. Stimulus by the Bank of Japan has played an outsize role in Prime Minister Shinzo Abe's economic policy, known as Abenomics. One concern for government and central bank officials is that companies will resist demands to increase workers' pay as the stronger yen eats into profits. That would block what the bank and many economists see as a crucial means of promoting spending and inflation.
"Corporate management now has many excuses for not raising wages," Adachi said. He added that the Bank of Japan would likely impose even steeper negative rates, something Kuroda hinted was possible in a policy speech last week.
"One purpose of the [Bank of Japan's] move was to dispel the idea that it lacks ammunition," he said. "Kuroda will continue to try and surprise the market."
Business on 02/10/2016