With the Bank of Japan likely to raise rates to 1.25%, the highest level in 31 years, annual costs for households with home mortgages are expected to increase by approximately ¥19,000, and the market is focused on the pace of future rate hikes.
As the Bank of Japan and the US Federal Reserve prepare to hold meetings during a "central bank week," the Bank of Japan's rate decision and its subsequent impact on household finances have become the market's focus. While pricing in a US rate hike, the interest-rate futures market is increasingly taking the view that there is a high probability the Bank of Japan will raise its policy rate from the current 1.0% to 1.25%.
In the United States, headline CPI in August was 3.4% year on year, unchanged, while the core index rose 0.3% month on month. Long-term interest rates have risen, strengthening expectations that the possibility of a rate hike will increase toward year-end. Meanwhile, economic and fiscal developments in Europe and the United States, as well as trends in the crude oil market, are also heightening market caution.
The impact on household finances varies by household composition. After offsetting the increase in deposit interest income against the increase in loan interest payments, one estimate shows an overall benefit of approximately ¥6,000. However, households with home mortgages would face a loss of approximately ¥19,000, with one analysis indicating that the burden would be greater for people aged 29 and under, at approximately ¥50,000.
Market participants believe the pace of future rate hikes could shift significantly depending on the content of Governor Ueda's (植田) press conference, potentially affecting the yen exchange rate as well. The Bank of Japan's decision and the governor's comments at the press conference will be important factors influencing the direction of financial markets going forward.