Financial Repression: Why Real Assets Matter Now
Central banks are buying government bonds again — and Japan already shows where that road leads. A look at what it means for savers, and why real assets in Germany are one response.
Japan's 13-year lesson in financial repression
Japan carries the highest debt-to-GDP ratio of any developed economy — around 215%. For thirty years, a sovereign default has been expected. It never came. Instead, Japan's central bank spent over a decade buying up its own government bonds until it held more than half of them, and in 2016 formally capped long-term interest rates. That instrument isn't even Japanese in origin — the US used the same tool in 1942 to erode its wartime debt.
The result for Japanese savers, according to a recent analysis by Ray Dalio: Japanese government bonds lost around 51% of their value against the dollar since 2013, and 76% against gold. Japanese wages fell roughly 55% behind US wages over the same period. The yen sits at a 40-year low. No default, no headline crisis — just a slow, government-engineered erosion of savers' purchasing power. Economists call this pattern financial repression: reducing the real value of government debt through below-market interest rates and central bank bond purchases, rather than default.
The ECB already has the same tool on the shelf
The eurozone entered a stagflationary patch in 2026: inflation running above the ECB's target, growth stalled, and the ECB's first rate hike since 2023. A heavily indebted currency union combined with a central bank that can't shrink its balance sheet indefinitely is historically exactly the setup in which government bond buying quietly resumes.
The ECB has already announced the mechanism: a structural securities portfolio, to be introduced once the Eurosystem's balance sheet starts expanding on a lasting basis again — in plain terms, once the central bank starts holding government bonds permanently again, the way the Bank of Japan has since 2013. On top of that, the Transmission Protection Instrument, in place since 2022 and never activated, lets the ECB buy unlimited amounts of a single eurozone country's government bonds in a crisis. Both instruments are officially documented policy, not speculation.
Real assets over cash
When a central bank erodes debt over time instead of defaulting on it, the state doesn't lose. Whoever holds cash, savings accounts or conventional government bonds does — slowly, which is exactly why most people don't notice until it's too late.
What tends to hold its value through this kind of cycle is real assets with limited supply. For investors, that means a well-structured income property — a German investment property (Kapitalanlage-Immobilie), whether a heritage building with accelerated German tax depreciation (Denkmal-AfA under §7i) or a care-home investment property (Pflegeimmobilie) — is not a lifestyle purchase but an active hedge: rental income plus a tax-advantaged depreciation schedule, while cash savings quietly lose real value.
Frequently asked questions
What is financial repression?
Is the European Central Bank planning to buy government bonds again?
Why look at Germany specifically for real assets right now?
How does the German heritage-building tax allowance (Denkmal-AfA) work for investors?
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This article is a personal assessment of the macroeconomic situation, not investment advice.