Following the Bank of Japan's end to negative interest rates and gradual policy-rate hikes, mortgage rates have risen from the 0% range to the 1% range. Variable rates are becoming more sensitive to Bank of Japan policy, widening the gap with fixed rates.
Since the Bank of Japan ended its negative interest rate policy in March 2024, interest rates have shifted from an era of continued rate cuts to an era of normalisation. This has affected market interest rates used as benchmarks for variable-rate loans, funding costs and discounts offered to customers, leading to significant changes in housing loan rates.
The BOJ’s policy rate rose in stages, reaching approximately 0.25% in July 2024, 0.5% in January 2025, 0.75% in December 2025, 1.0% in June 2026 and 1.25% in September 2026, according to the outlook. The BOJ’s policy remains to keep the uncollateralised overnight call rate at approximately 1.25%.
The BOJ’s policy rate and housing loan rates do not move to exactly the same level. Banks set rates after comprehensively considering market interest rates, funding costs, the competitive environment, customer discounts and credit risk, among other factors. The two rates are therefore not identical. The BOJ’s moves are said to have a particularly strong impact on variable rates.
For example, PayPay Bank’s variable rate for new borrowings rose from 0.380% in April 2024 to 1.330% in July 2026 and 1.580% in October 2026. At Mitsubishi UFJ Bank, the variable rate was 1.195% per annum and the posted branch rate was 3.375% per annum at the same point in time. The actual rate differs depending on the spread between the benchmark rate and the applicable rate.
Fixed rates remain elevated because financial institutions bear the risk of future rate increases. Even if variable rates appear low, repayments may increase over the long term depending on conditions. Assuming repayments over the next 35 years, the figures show that higher rates can significantly change both monthly repayments and total repayments.
Going forward, some observers say that loan structures able to withstand higher rates and stress testing will be more important than trying to predict interest rates. Borrowers are being urged to consider repayment plans based on the impact on household finances if rates rise to 2% or 3%. Higher rates may also affect property prices.