How will our deposits and loans change when the Bank of Japan raises interest rates? | Money Study

On September 18, 2026, the Bank of Japan raised its policy interest rate from 1.00% to 1.25%. This is the second rate hike in three months, following the one in June.

Many people probably saw the news and wondered, “So, what happens to my deposits and loans?” To give you the answer upfront, even though it is the same “interest rate hike,” the magnitude and timing of the increase differ depending on the type of money.

• Deposits: They will rise. However, the increase will be small.

• Variable-rate loans: They will rise by almost the same margin as the policy rate. However, it will take some time before this affects those who currently have loans.

• Fixed-rate loans and government bonds: These are determined by the market, not the Bank of Japan. These have already risen significantly.

We will look at these in order.

The Bank of Japan moved the “overnight interest rate”

The policy interest rate set by the Bank of Japan is the interest rate for when banks lend and borrow money from each other for just one night. The only thing the Bank of Japan directly determines is this shortest-term interest rate. The interest rates for our deposits and loans are decided by each bank while keeping an eye on this.

I wrote in detail about how short-term and long-term interest rates are determined differently in this article.

Deposits: They will rise, but the increase will be small

Following the rate hike, the three major banks—Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho—announced that they would raise the interest rate on ordinary deposits from 0.4% to 0.5%, effective November 2. Japan Post Bank will also raise it to 0.5% starting November 9.

If you keep 1 million yen in an ordinary deposit, the interest earned in one year will be as follows.

• At 0.4%: 4,000 yen (3,187 yen after tax)

• At 0.5%: 5,000 yen (3,984 yen after tax)

The increase is about 800 yen per year after tax.

What we want to pay attention to is the magnitude of the increase. The policy interest rate rose by 0.25%, but the interest rate on ordinary deposits only rose by 0.1%. Since banks decide how much to raise deposit interest rates, it does not necessarily mean they will rise by the same amount as the policy interest rate.

Variable-rate loans: The increase is large, but it will take some time to take effect

What about the borrower’s side? The variable interest rate for housing loans is determined by many banks based on the “short-term prime rate.” This is the interest rate for when banks lend money to highly creditworthy companies for less than one year.

Mitsubishi UFJ Bank will raise this short-term prime rate from 2.375% to 2.625% per year, effective November 2. The increase is 0.25%, which is the same as the increase in the policy interest rate. Sumitomo Mitsui Banking Corporation will also raise it to the same level starting November 9.

Deposits are 0.1%, and the loan benchmark is 0.25%. We can see that the interest rates on the borrower’s side move more significantly.

However, this does not mean that the repayments of those currently holding loans will be immediately affected.

• At many banks, variable interest rates are reviewed twice a year (April 1st and October 1st). In the case of MUFG Bank’s twice-a-year type, this increase will be reflected in the next review on April 1st, and it will start affecting repayments from July 2027.

• For principal and interest equal repayment, many banks have a “5-year rule,” meaning the monthly repayment amount does not change for five years. Even when it is reviewed, there is a “125% rule” where the repayment amount can only increase up to 1.25 times the previous amount.

That said, just because the repayment amount does not change does not mean the burden remains the same. The portion of the monthly repayment that goes toward interest increases, which slows down the reduction of the principal.

As a rough estimate, if the interest rate on a loan with a balance of 30 million yen rises by 0.25%, the interest will increase by about 75,000 yen per year (30 million yen × 0.25%).

Fixed interest rates and government bonds: Determined by the market, not the Bank of Japan

Fixed-rate mortgages and government bond yields are linked to long-term interest rates determined by the market, not the short-term interest rates determined by the Bank of Japan. And these have already risen significantly.

The interest rate on 10-year government bonds issued by the Ministry of Finance in October was 3.1%, the highest level in about 30 years. The interest rates for individual government bonds (October offering) are also 2.05% for the 10-year variable, 2.39% for the 5-year fixed, and 2.07% for the 3-year fixed. There is a significant difference from the 0.5% on ordinary deposits.

Fixed mortgage rates are also rising, with 10-year fixed rates at major banks now around 4%.

Practice questions

(a) When the Bank of Japan raises interest rates, which is more likely to move in tandem: a variable-rate loan or a fixed-rate loan?

(b) If the interest rate on 1 million yen in an ordinary deposit rises from 0.4% to 0.5%, how much will the pre-tax interest increase per year?

(c) For a variable-rate loan with principal and interest equal repayment, what is the name of the rule that prevents the monthly repayment amount from changing immediately even if interest rates rise?

Think about it, then scroll down.

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(a) A variable-rate loan. This is because it is based on short-term interest rates close to the policy rate, such as the short-term prime rate.

(b) 1,000 yen. 1 million yen × 0.1% = 1,000 yen. After tax, it is about 800 yen.

(c) The 5-year rule. The repayment amount is only reviewed every five years, and even at the time of review, it is capped at 1.25 times the previous amount (125% rule).

Summary

• The Bank of Japan determines overnight interest rates. Banks decide deposit and loan interest rates by looking at those.

• Deposit interest rates will rise, but the increase will be small (+0.1% this time).

• Variable-rate loans will rise by roughly the same margin as the policy rate (+0.25% this time). However, it will take some time before this affects those who currently have loans.

• Fixed interest rates and government bonds are determined by the market. The 10-year government bond yield is at 3.1%, the highest in about 30 years.

You can read the basics of interest rates and bonds here.

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*Interest rate figures are based on announcements and reports from the Bank of Japan, various banks, and the Ministry of Finance confirmed as of October 11, 2026. Loan interest rates and review rules vary by bank and contract, so please also check the information provided by your lender.

This article is intended to provide general knowledge and information and is not intended to solicit the purchase of specific financial products or investments. While we strive to ensure the accuracy of the information in this article, we do not guarantee its completeness or timeliness. Please make actual investment and business decisions based on your own judgment and responsibility.