TOKYO - The Bank of Japan's decision on June 16 to raise its policy interest rate to 1%, the highest level in roughly 30 years, is expected to increase annual net burdens by more than 20,000 yen for households in their 30s with two or more members once higher interest income on deposits and increased mortgage repayment costs are both taken into account, according to estimates by an economist.
Japan's consumer price index for May rose 1.4% from a year earlier, remaining below the BOJ's 2% target on the headline core measure. However, an index published by the central bank that excludes special factors, available through April, stood at 2.8%, well above the target. The gap reflects the impact of factors such as gasoline subsidies, suggesting that underlying inflationary pressure may already be stronger than the headline figure indicates.
Corporate goods prices are also exerting pressure on future consumer prices. With corporate price growth running above 3%, costs are expected to feed through to consumer inflation from summer through the end of the year. The expiration of electricity and gas subsidies, higher costs for petrochemical products linked to rising tensions in the Middle East, and increased prices for food packaging are expected to push the CPI above 3% year on year toward the end of the year.
The rate increase from 0.75% to 1% is estimated to bring households a net annual benefit of around 1 trillion yen overall, while imposing an estimated 1.1 trillion yen burden on companies. Households as a whole hold more than 1,000 trillion yen in deposits, meaning higher interest rates generate sizable income gains. Companies, by contrast, face higher interest expenses on debt, which weighs on earnings.
The impact on households differs sharply by age. For two-or-more-person households, higher interest income from deposits and bonds minus increased mortgage repayment costs results in an average annual gain of about 20,000 yen per household. But for households headed by people in their 30s, the balance turns negative, with a burden increase of more than 20,000 yen a year.
Older households, particularly those headed by people in their 60s and 70s, tend to have accumulated more financial assets and have recently held a higher share of those assets in deposits. As interest rates on time deposits rise, these households are more likely to benefit. Younger households, however, are more likely to have recently bought homes and still carry large mortgage balances, making them more exposed to increases in borrowing costs.
For a model household that has just bought a home with a 40 million yen variable-rate mortgage over 35 years, the impact could be substantial. Assuming an initial interest rate of 0.95% and a rise to 1.20% in the second year, monthly repayments would remain at about 112,000 yen through the first five years under the so-called five-year rule, which limits immediate changes in payments. From the sixth year, however, the monthly repayment would rise to about 117,000 yen, an increase of roughly 5,000 yen a month.
Over the full 35-year repayment period, the total amount paid would rise by about 1.91 million yen under that scenario. If the BOJ continues raising rates two or three more times, as some expect, mortgage rates and repayment amounts would likely rise further.
The burden on younger households is being compounded by higher home prices. Nominal wages have risen as companies grant pay increases, but real wages adjusted for inflation remain under pressure. When wages are adjusted for real estate prices rather than general inflation, the decline is even sharper, indicating that the affordability of home purchases has deteriorated markedly for younger buyers.
More borrowers are turning to longer repayment periods to reduce monthly payments, including mortgages with terms of up to 50 years. Such loans can ease short-term repayment pressure, but they also create long-term risks. A borrower in their 30s could still be repaying the loan into their 80s, requiring careful consideration of future income, retirement timing and interest-rate risk.
The rate hike is expected to have a broadly negative effect on corporate management, with small and midsize companies especially vulnerable to higher borrowing costs.
Source: テレ東BIZ
