The end to the Bank of Japan's eight-year-long negative interest rate policy is a double-edged sword for average citizens, who may find mortgages less affordable but benefit from higher interest on savings and cheaper imported goods on the back of a stronger yen.

Variable rate mortgages will likely be impacted by the central bank's first rate hike in 17 years, while 10-year fixed-rate mortgages have already been trending upwards due to the BOJ's gradual adjustments to its monetary easing policy over the past two years.

The majority of home buyers in Japan currently opt for a variable rate loan, as its rates have remained historically low at around 0.3 percent due to intense competition among banks to offer lower lending rates.

Variable interest rates are calculated by adding a fixed interest rate to the short-term prime rate, which banks charge their most creditworthy borrowers, and then subtracting a margin based on the borrower's credit rating.

The prime rate is affected by changes in the BOJ's interest rate policy, but there is strong market expectation that the current rate of 1.475 percent will be maintained by major banks for the time being.

Photo taken in Tokyo on Oct. 10, 2023, shows signboards of (from L) Resona Bank, MUFG Bank and Mizuho Bank. Japan's nationwide payments clearing system was disrupted by a glitch the same day, affecting some fund transfers at over 10 banks including the three. (Kyodo) ==Kyodo


Masahiko Kato, chairman of the Japanese Bankers Association and president of Mizuho Bank, has said that "the burden (on borrowers from variable interest rates) will not immediately increase significantly (with the BOJ's policy shift)."

Still, even a 0.1 percentage point rise in mortgage rates would result in around a 700,000 yen ($4,700) increase in the total repayment for a 35-year loan of 35 million yen.

According to the Japan Housing Finance Agency, around 20 percent of homeowners with variable-rate mortgages are unsure of how to respond to an interest rate increase.

An increase in interest rates, however, will be a boon for savings accounts, while life insurance premiums are also likely to go down as the return promised by insurers to policyholders will increase.

The BOJ's overhaul of its unorthodox monetary easing framework may also put a brake on the dollar-buying, yen-selling trend that has dominated due to a widening interest rate differential between the United States and Japan.

While a stronger yen is expected to reduce the cost of imported raw materials and resources, helping to ease inflation, it also raises the prospect of reduced overseas earnings for exporters when their profits are repatriated.

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