An overview of the Bank of Japan's rate-hike outlook and its impact on households and assets. The article examines the increase in mortgage costs, trends in deposit rates and differences in how household segments are affected.
The Bank of Japan is expected to raise its policy rate to 1.25% in September, with views suggesting that it could reach around 1.5% in a second rate hike later this year. This has reportedly increased interest in domestic interest-rate products.
Rate hikes are generally considered a factor that restrains the economy and prices. While they increase the interest burden on households with mortgages, they may also create households that receive more interest income from deposits. The differing direction of the impact depending on the age of the household is being highlighted.
Specifically, liabilities often exceed assets for younger- and middle-aged households, and higher costs are expected to put pressure on household finances. By contrast, for households aged 50 and over, cash and deposits may exceed liabilities, potentially improving their income and expenditure balance as a result of rate hikes.
There is a view that the increase in deposit rates will remain at around 40% of the policy rate, with some pointing out that this limits the actual ability to counter inflation. Against this backdrop, the possibility that holding equities and other assets may be considered as a means of protecting assets in a rate-hike environment has been suggested.