TOKYO - The Bank of Japan has decided to raise its policy interest rate to around 0.75 percent, a level not seen in 30 years, prompting questions about how the move will affect the weak yen, rising prices, and household finances across different generations.
The decision was made at the central bank’s two-day monetary policy meeting that began on December 18th, with the policy rate lifted from around 0.5 percent, where it had been held since January. A rate above 0.5 percent marks the highest level since 1995.
The Bank of Japan cited the likelihood of solid wage increases continuing into next year, as well as reduced uncertainty surrounding U.S. tariffs, as key reasons for the rate hike.
One immediate benefit may be higher deposit interest rates at financial institutions. If deposit rates rise from 0.1 percent to 0.2 percent, for example, interest on a 1 million yen deposit would increase from 1,000 yen to 2,000 yen.
Shingo Ide, chief researcher at the NLI Research Institute, noted that while the United States is moving to cut interest rates, Japan’s rate hike could narrow the interest rate gap between the two countries, potentially helping to curb the yen’s depreciation. This could make it easier to contain import-driven inflation in items such as gasoline and food, easing the pace of price increases.
For working-age households, however, the biggest concern is housing loans. Around 70 percent of borrowers are said to choose variable-rate mortgages, meaning higher interest rates translate directly into higher monthly repayments.
For a 35-year loan of 35 million yen, monthly repayments would rise from 90,854 yen at a variable rate of 0.50 percent to 98,799 yen at 1.00 percent, and to 107,164 yen at 1.50 percent, according to housing loan comparison service Moge Check.
Research by Naoki Hattori, chief Japan economist at Mizuho Research & Technologies, shows that younger households face a heavier burden from rising interest rates than older households. When factoring in the impact of higher mortgage and deposit rates by age group of household heads, households with two or more members aged 50 and over are estimated to see a net annual gain, while those aged 29 and under, as well as 30 to 49, face net losses.
When the analysis is limited to households that actually hold loans, the negative impact becomes more pronounced, with annual losses estimated at 45,000 yen for households aged 30 to 39, and 50,000 yen for those aged 29 and under.
Older households tend to benefit more due to larger savings and fewer loan repayments, while younger households, with smaller savings and heavier loan burdens, face greater financial strain.
Ide also warned that the policy rate could rise to around 1 percent next year, raising the risk that households with loans will further cut back on everyday spending.
Source: ABCTVnews
