Japan's Housing Loan Interest Rates Rise After 13 Years: What Should Individuals Prepare For?

Since June, major Japanese banks and internet banks have raised fixed-rate mortgage interest rates. The average 10-year fixed-rate for the three major mega-banks has risen by 0.08% to 3.89%, the highest level in about 13 years. There are also expectations that the Bank of Japan will implement a further interest rate hike at the monetary policy decision meeting scheduled for June 13th and 14th. The rising interest rates are raising concerns about accelerated corporate weeding-out and an increase in bankruptcies. In order to protect themselves from this rising interest rate risk, individuals need to change their perception of interest rates.

In mid-May, amid growing global concerns about inflation, upward pressure on interest rates intensified. On May 22nd, the yield on newly issued 10-year Japanese government bonds exceeded 1.00%. This is the highest level in about 11 years since May 2013, when the Bank of Japan introduced unconventional quantitative easing under Abenomics and entered an ultra-low interest rate environment. With growing concerns about future interest rate hikes, companies in Japan and the United States are increasingly issuing corporate bonds to secure funding early. From a "world without interest rates" to a "world with interest rates," a significant societal shift is about to occur in Japan.

Since the collapse of the stock market bubble in the early 1990s, the Bank of Japan has maintained an almost continuous policy of monetary easing. For most of the Lost Decade, interest rates were effectively 0%. Many people still believe that "interest rate risk is negligible." However, that situation is finally about to change. The yield on 2-year government bonds, which tends to be highly sensitive to expectations about the course of monetary policy, has also risen. In Japan, the era of interest rates is reviving, and changes will be felt in daily life and business operations, such as rising mortgage rates or increases in deposit interest rates.

Since many people are not accustomed to rising interest rates, it is important to prepare in advance for how it might affect daily life or business operations.