The Bank of Japan ended negative interest rates in March 2024 and raised short-term interest rates. Interest rates continued to rise gradually thereafter, reaching 3% in January 2025. This increase in interest rates has a direct impact on our daily lives, including mortgage and savings interest rates.
Let's consider how rising interest rates will affect household finances and what measures can be taken to address them.

Winners and losers of rising interest rates

Bank deposit interest increases

When interest rates rise, the "interest" on money deposited in a bank (regular savings account or fixed term deposit) also increases. For example, if the interest rate on a regular savings account rises from 0.001% to 0.1%, the annual interest on a deposit of 100 million yen may go from 10 yen to 1,000 yen.

Example :
• If you deposit 100 million yen, the interest you receive, which was previously 10 yen per year, could increase to several hundred yen or even thousands of yen.
• Households with larger savings are more likely to benefit from rising interest rates.

Mortgage repayments increase

Families with mortgages should be careful. Especially for "variable interest" mortgages, repayment amounts may increase if interest rates rise.

With a variable interest rate loan, the repayment amount changes according to market interest rate trends, so if interest rates rise, the monthly payment amount also increases. On the other hand, with a "fixed interest rate" loan, the interest rate decided at the time of the contract does not change and the repayment amount remains constant.

Example :
• The monthly mortgage, which was 10 yen, increased to 11 yen due to rising interest rates.
• This could result in an additional burden of 12 yen per year, putting a strain on household finances.

Impact on shopping and borrowing

As interest rates rise, so do the interest rates on loans for cars, home appliances, etc. For example, if you borrow a 300 million yen car loan at an interest rate of 3% versus 4%, the total payment over five years will be about 5 yen different.
There may be fewer advertisements such as "Low interest rates now!", making it more difficult to borrow money.

Example :
• For a 300 million yen car loan, a 1% increase in interest rate can increase the total repayment amount by tens of thousands to hundreds of thousands of yen.
• Rising interest rates on education loans could also lead to an increased burden of tuition fees.

Vulnerable and non-vulnerable families

Vulnerable families

• Households with mortgages or loans: Possibility of increased repayments.
• Families who are thinking about making big purchases or paying for education: Check the loan terms.
• Families with large savings: The possibility of benefiting from increased deposit interest.

Low-impact families

• Households without debt will be less directly affected, but there will be an indirect effect on prices and consumer behavior.

Trends in interest rate policy and future prospects

Trends over the past three years

• End of 2022: The allowable fluctuation range for long-term interest rates has expanded.
• 2023: Long-term interest rates will be capped at 1.0%.
• February, 2024: Negative interest rates lifted, short-term interest rates to 0-0.1%.
• February, 2024: Short-term interest rates rise to 0.50%.

Future outlook

• 2025: Possibility of policy interest rate being raised to 0.75%.
• Long-term interest rates: To 1.0% to 1.25% by the end of the year.
• 影響: Increased burden of mortgages and consumer loans. On the other hand, interest on deposits is also increasing.

What should I do? Tips for managing your household finances

How to conduct a household budget meeting

Specific measures
• Reviewing your mortgage
If you have a variable interest rate, consider refinancing to a fixed interest rate or making early repayments.

• Time your big purchases
When purchasing a car or home appliance, be sure to check the loan terms, especially the type of interest rate, repayment period, fees, and whether or not you can make early repayments.

• Reassess your savings
If you are considering a fixed term deposit, choose one with a higher interest rate.
As a measure against inflation, we are considering using investment trusts and government bonds for individuals.

• Use expert opinion
Use a household budget simulation tool or consult a financial planner to create the optimal financial plan.

Final thoughts

The Bank of Japan's interest rate policy affects our lives. While it increases the burden of mortgage payments, it also has the benefit of increasing interest on savings accounts.

The important thing is to take measures that suit your finances. Consider reviewing your mortgage, diversifying your savings, and taking advantage of fixed-rate products to mitigate the impact of rising interest rates.

To protect your household finances, it is important to understand the current situation and take appropriate action. Why not use this article as an opportunity to think about managing your finances in a way that is reasonable?