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 to modify its policy rate from around 0.75% to approximately 1.0% during its monetary policy meeting the previous day.
As a result, the regular deposit rate at major banks will increase to 400 times higher than the pre-negative interest rate level of 0.001%. This marks the highest level since August 1992 for both Mitsubishi UFJ Bank and Sumitomo Mitsui Trust Bank.
Loan rates are also expected to rise. Japanese media predict that the increase will be reflected in variable-rate mortgages starting in October. MFS, which operates the mortgage comparison service 'Mogecheck,' calculated that if the interest rate on a 50 million yen (approximately $470,000) mortgage with a 35-year repayment period rises from 1.0% to 1.25%, the monthly repayment amount would increase by about 5,900 yen (approximately $55).
Overall, analysts suggest that the increase in deposit interest could outweigh the burden of rising loan interest for households. Mizuho Research Institute estimates that if the policy rate rises to 1%, households could benefit by about 1 trillion yen (approximately $9.4 billion) annually, or about 20,000 yen (approximately $190) per household.
However, the actual impact is likely to vary by demographic. Older individuals with significant financial assets may benefit from increased interest income, while younger individuals with substantial mortgage debt may face greater repayment pressures.
For businesses, rising interest rates could pose a significant threat to profitability. Mizuho Research Institute predicts that this move 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 (approximately $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 from the United States has influenced this decision.
However, the path for further interest rate hikes by the Bank of Japan remains uncertain. Kyodo News reports that the number of cautious members regarding rate increases will rise 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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