TOKYO - Japan's return to a world of higher interest rates is reshaping household finances, with a growing number of young homebuyers turning to 40- and 50-year mortgages to afford rapidly rising apartment prices, according to a discussion aired on BS-TBS's Report 1930 on June 17.
The program examined the impact of the Bank of Japan's decision to raise its policy rate to 1%, the first time in 31 years that rates have reached that level. The increase comes as housing costs continue to climb, particularly in Tokyo, raising concerns about how younger generations will manage the burden of homeownership.
Former Bank of Japan Executive Director Hideo Hayakawa said market concerns that the central bank was falling behind inflationary pressures intensified after long-term Japanese government bond yields surged to 2.8% in mid-May. He argued that fears of being "behind the curve" strengthened support within the BOJ for a rate hike and made government opposition difficult.
Despite the increase, Japan's policy rate remains low by international standards. Hayakawa noted that if inflation accelerates further, the BOJ could ultimately be forced to raise rates more aggressively, potentially increasing the burden on borrowers.
The discussion highlighted the rapid growth of ultra-long-term housing loans. According to housing industry data, the share of borrowers using 40- and 50-year mortgages in the Tokyo metropolitan area nearly tripled in a year.
One buyer in his 20s who purchased a newly built apartment in Tokyo's 23 wards last year said he borrowed 110 million yen through a 50-year variable-rate pair loan with his wife. The family, which includes their 1-year-and-7-month-old son, lives in a 70-square-meter, two-bedroom apartment and has a combined annual income of about 18 million yen.
The couple's monthly mortgage payment is approximately 230,000 yen. By the time the loan is fully repaid, their son would be 51 years old.
The buyer said many people are surprised by the length of the loan, but argued that careful financial planning and investment can make the arrangement reasonable. Rather than focusing on paying off the mortgage as quickly as possible, he said the lower monthly payments allow the family to invest in other assets.
A simulation presented during the program showed that borrowing 110 million yen at a variable rate starting at 1% and rising to 1.25% would result in total repayments of roughly 148 million yen over 50 years. If rates eventually reached 2.25%, total repayments would climb to about 180 million yen.
Housing specialists said soaring urban property prices have pushed many younger buyers toward longer loan terms. Even dual-income households often struggle to afford homes in central Tokyo without extending repayment periods.
Hayakawa noted that younger generations have accumulated far more mortgage debt than previous generations, partly because of decades of ultra-low interest rates. Unlike earlier homebuyers who typically saved substantial down payments before purchasing property, many younger households now take on large loans earlier in life.
Data presented during the program suggested that rising interest rates disproportionately affect younger households, while older households with savings may benefit from higher returns on deposits and investments.
Experts warned that although some financially sophisticated borrowers may successfully use long-term mortgages as part of broader investment strategies, others could face significant difficulties if rates continue to rise. Comparisons were drawn to the risks that contributed to the global financial crisis, when rising borrowing costs left some homeowners unable to meet repayments.
The program also explored whether higher interest rates will eventually cool Japan's housing market. Analysts said conventional economic theory suggests rising rates should put downward pressure on property prices. However, severe shortages of housing supply, construction workers, and building materials may prevent significant price declines, particularly in popular areas near central Tokyo train stations.
Political implications were also discussed. Commentators noted that many younger homeowners form part of Prime Minister Sanae Takaichi's support base, meaning rising mortgage burdens could become a growing political issue if additional rate hikes occur.
Beyond housing, the discussion examined Japan's broader economic challenges. While labor productivity has increased over the past several decades, wage growth has lagged behind. Corporate profits and retained earnings have reached record highs, yet large companies continue to devote a relatively small share of earnings to workers compared with smaller firms.
The program cited France as an example of a country that requires profitable companies to share earnings with employees. Some analysts argued that introducing similar mechanisms in Japan could help accelerate wage growth, though others cautioned that Japan's corporate structure and labor market differ significantly from those in Europe.
Participants noted that Japanese companies have become more willing to raise wages in recent years, driven by labor shortages and a more active job market. Younger workers are increasingly willing to change employers, forcing companies to compete more aggressively for talent.
Even so, the panel concluded that Japan's transition away from decades of low inflation and near-zero interest rates will create difficult trade-offs for households, businesses, policymakers, and younger generations trying to buy homes in an increasingly expensive market.
Source: TBS
