Bank of Japan keeps interest rates at 1.25%, but speculation of a December hike remains

Hello, this is Sato from Honki Real Estate.

At its Monetary Policy Meeting held on October 29-30, the Bank of Japan decided to keep its policy interest rate at approximately 1.25%.

While one might want to feel relieved by this ‘hold,’ there are reports that the short-term money market has already priced in an approximately 80% chance of an additional rate hike in December.

For those planning to buy a home or those currently repaying a variable-rate mortgage, I will summarize the key points of this decision and what you should check now.

[Summary of Key Points]

• Policy interest rate held at approximately 1.25% (8 votes for, 1 against)

• The dissenting board member proposed a rate hike to 1.50%

• The Bank of Japan judged that the underlying inflation rate has reached a level ‘broadly consistent with the 2% target’

• Governor Ueda checked speculation of an early rate hike, stating that this is not a declaration of a sustainable and stable achievement of the target

• Market interest has shifted toward a rate hike to 1.50% at the December meeting (though this is not confirmed)

[Sato’s Field Perspective] It’s not about ‘will interest rates rise,’ but ‘can you handle it if they do?’

Variable-rate mortgages are linked to short-term interest rates, so if the policy rate rises, the applied interest rate will also move in an upward direction. For many financial institutions, interest rate reviews occur twice a year, and repayment amount reviews occur every five years, so your monthly payment will not necessarily change immediately. However, if interest rates rise during that period, the proportion of interest in your payment will increase. It is important to note that ‘no change in repayment amount’ does not mean ‘no impact.’

Let’s look at the specific numbers. For a 40 million yen loan over 35 years, principal and interest equal repayment, with no bonus payments, a simple calculation shows the monthly payment is approximately 112,900 yen at a 1.0% interest rate, 117,600 yen at 1.25%, and 122,500 yen at 1.5%. The difference is about 4,700 yen for a 0.25% increase and about 9,600 yen for a 0.5% increase. While these are just estimates, it is important to check if your household budget can withstand these costs, including property taxes, management fees, repair reserve funds, and education expenses.

In my purchase consultations, I always advise setting a budget based on ‘the amount you can continue to pay even if interest rates rise,’ rather than ‘the amount you can borrow.’ No one can accurately predict the future of interest rates. That is why, instead of betting on a forecast, you should calculate your repayment amount assuming interest rates rise by 1%, and then choose a property that remains affordable even then. If you follow this order, you will be less swayed by the news.

[Conclusion]

Although rates were held this time, this is a phase where you should prepare on the assumption that an era of interest-bearing rates will continue. If you are currently repaying a loan, check your applied interest rate and the timing of your next review. If you are planning to purchase, try considering a budget that accounts for potential interest rate hikes. For refinancing to a fixed-rate loan, I recommend having a financial institution calculate the details individually, including various fees.

Thank you for reading until the end. This was Sato from Honki Real Estate.

*These calculations are estimates. Actual interest rates and repayment amounts vary depending on the financial institution and contract details. Source: Reports and commentary on the Bank of Japan Monetary Policy Meeting on October 30, 2026 (Gaitame.com, 8and., etc.).