June 18, 2026
TOKYO – The Bank of Japan’s decision to raise a key interest rate is expected to have both positive and negative impacts on households and businesses. While interest earned on bank deposits will increase, burdens from borrowing, such as housing loans, will rise. Whereas the elderly are expected to benefit greatly from the interest rate hike, younger people are likely to be adversely affected.
In response to the central bank’s decision, three major banks — MUFG Bank Ltd., Sumitomo Mitsui Banking Corp. and Mizuho Bank Ltd. — announced Tuesday that they would raise interest rates on savings accounts by 0.1 percentage points to 0.4%, effective Aug. 3. The rate stood at 0.001% in March 2024, when the Bank of Japan ended its negative interest rate policy, meaning that the new interest rate represents a 400-fold increase.
For MUFG and Sumitomo Mitsui, this will mark the highest level in 34 years, or since August 1992, at a time when the two banks had yet to be formed through mergers of their various predecessors. As for Mizuho, the new interest rate will be the highest level since the bank’s founding in 2002.
According to estimates by the Mizuho Research Institute, the overall household economy will see a net gain of ¥1 trillion per year after balancing the positive and negative effects of the interest rate hike. This will be primarily due to an increase in interest income, which translates into an average annual gain of ¥20,000 per household.
However, the degree of the benefits will vary for each household depending on the size of their deposits and borrowings. Generally speaking, older people with larger financial assets will benefit more from increased interest income, while younger households with large outstanding housing loans will tend to be more negatively impacted.
According to the company that operates mogecheck, a site comparing mortgages, in a case where ¥50 million is borrowed on a 35-year variable-rate mortgage and the variable interest rate rises to 1.25%, the monthly payment will increase by ¥5,900 to reach ¥147,043, compared to before the hike. Since 80% of mortgage borrowers choose variable-rate loans, many households are expected to be affected.
The total repayment amounts for student loans, education loans and auto loans are also expected to rise. As interest rates are determined based on various factors, such as government bond yields, borrowers may be forced to revise their repayment plans.
As the interest burden of borrowing increases, the interest rate hike will inevitably affect corporate management. Mizuho Research Institute estimates that ordinary profit across all industries, excluding the finance and insurance sectors, will be reduced by 1.0%, or about ¥1.1 trillion. Small and medium-sized companies with low profits against interest-bearing debt will tend to be affected. Businesses with capital of less than ¥10 million are projected to see their ordinary profit decline 6.6%.
Looking Back on 1995
The year 1995 — the last time the Bank of Japan’s key interest rate was at 1% — witnessed a series of major events, such as the Great Hanshin Earthquake and the sarin gas attack on the Tokyo subway.
On the economic front, the prolonged economic slump following the collapse of the bubble economy brought down a number of financial institutions, as they struggled with nonperforming loans. With the consumer price index stuck at 0% growth, the nation fell into a long period of deflation.
The BOJ was in the process of cutting interest rates, lowering the official discount rate — then the policy interest rate — from 1.75% to 1% in April, and then to 0.5% in September.
Along with the economic slump, successive failures of banks and credit cooperatives in July and August stoked concerns about the financial system.
Meanwhile, the yen was appreciating, at one point strengthening to the ¥79 level to the dollar.
Monetary easing was aimed at simultaneously correcting the strong yen to improve the earnings of exporters, stimulating the economy and disposing of nonperforming loans.
However, progress stalled on the nonperforming loans issue, causing Hokkaido Takushoku Bank and the former Yamaichi Securities to fail in 1997.
As prices remained flat, the government acknowledged in 2001 for the first time since World War II that the Japanese economy was deflationary.
The BOJ introduced its zero-interest-rate policy in 1999 and maintained ultralow rates thereafter.
Haruhiko Kuroda, who became BOJ governor in 2013, pursued aggressive monetary easing, culminating in the adoption of a negative interest rate policy in 2016.