The Bank of Japan has raised its benchmark interest rate to approximately 1% for the first time in 31 years, prompting changes in deposit and loan rates across the country. While deposit interest rates are set to increase, the burden of mortgage and corporate loan interest is also expected to rise, leading to mixed outcomes for households and businesses.
According to reports from Yomiuri Shimbun and Nihon Keizai Shimbun on June 17, Japan's three major banks—Mitsubishi UFJ Bank, Sumitomo Mitsui Trust Bank, and Mizuho Bank—will raise their regular deposit rates from the current 0.3% to 0.4% starting August 3. This adjustment follows the Bank of Japan's decision the previous day to modify the policy rate from around 0.75% to approximately 1.0%.
As a result, the regular deposit rate at major banks will increase to 400 times the pre-negative interest rate level of 0.001%. This marks the highest rate since August 1992 for both Mitsubishi UFJ Bank and Sumitomo Mitsui Trust Bank.
Loan rates are also expected to rise significantly. Japanese media predict that variable-rate mortgages will reflect this increase starting in October. MFS, which operates the mortgage comparison service 'Mogecheck,' calculated that for a loan of 50 million yen (approximately $470,000) with a 35-year repayment period, the mortgage interest rate could rise from 1.0% to 1.25%, resulting in an increase of about 5,900 yen (around $55) in monthly repayments.
Overall, some analysts suggest that the increase in deposit interest could outweigh the burden of rising loan interest for households. Mizuho Research estimates that if the policy rate reaches 1%, households could benefit by approximately 1 trillion yen (around $9.4 billion) annually, or about 20,000 yen (approximately $190) per household.
However, the actual impact may vary by demographic. Older individuals with significant financial assets may benefit from increased interest income, while younger borrowers with substantial mortgage balances could face greater repayment pressures.
For businesses, rising interest rates could pose challenges to profitability. Mizuho Research predicts that this decision could reduce the ordinary profits of Japanese companies, excluding the finance and insurance sectors, by 1.0%. For companies with capital of less than 10 million yen (around $94,000), the decline could reach 6.6%.
This decision is seen as a response to the weakening yen and rising inflationary pressures that can no longer be ignored. Japanese media also suggest that the pressure for interest rate normalization in the United States may have influenced this move.
However, the path for further interest rate increases by the Bank of Japan remains uncertain. Kyodo News reports that the number of cautious members on the board regarding rate hikes will increase from one to two in the next meeting, raising questions about the smooth continuation of monetary policy normalization.
* This article has been translated by AI.
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