Discussions of an early rate hike intensified at the Bank of Japan's October 2026 meeting, bringing the impact of the neutral rate's target level on the real estate market into focus. Discussions centered on a neutral rate of around 1.1%–2.5%, with implications for housing loans and the investment environment expected to follow.
The Summary of Opinions from the Bank of Japan's October 2026 Monetary Policy Meeting reported multiple calls for the current policy rate to be raised promptly, with repeated arguments for an early rate hike. Many participants viewed the underlying inflation rate as having reached the 2% target and took a positive view of the regime shift. As a result, the focus of discussion turned to normalisation from the current unconventional monetary easing.
A range of around 1.1% to 2.5% was considered as an estimate of the neutral rate, and the level of interest rates needed to guide monetary policy toward neutral was discussed. It was noted that rate hikes could have a certain restraining effect on corporate capital investment and personal housing investment, and gradual normalisation is being considered while carefully assessing the impact on economic activity.
In the real estate market, higher mortgage rates could create upward pressure, potentially prompting a review of borrowing capacity and monthly repayment burdens. In investment markets, higher financing costs could affect cash flow and profitability, and attention is being drawn to the schedule of future policy decisions and the pass-through of policy rates to financial institutions' lending rates.