BOJ Raises Interest Rates to 1.25%: How Will Our Lives Change? – An Easy-to-Understand Explanation of the Impact on Mortgages, Deposit Rates, and the Yen Exchange Rate –
Hello, this is the Aimura Research Institute.
In this article, we will clearly explain how the Bank of Japan’s interest rate hike will change our money and daily lives, focusing on deposits, mortgages, and the yen exchange rate.
Chapter 1: The BOJ Raises the Policy Interest Rate to 1.25% – What Actually Changed?
On September 18, 2026, the Bank of Japan decided to raise the policy interest rate from approximately 1.00% to approximately 1.25%.
1.25% is the highest level in about 31 years.
When you look at the news, the figure of “1.25% policy interest rate” stands out, but there is something you should know first.
Just because the policy interest rate has become 1.25%, it does not mean that the interest rates for ordinary deposits or mortgages will automatically become 1.25%.
The policy interest rate is the benchmark rate used by the Bank of Japan to influence interest rates in the financial market, which in turn affects bank lending rates and deposit rates.
When the Bank of Japan raises interest rates, the impact spreads to the interest rates at which financial institutions lend and borrow money.
Then,
The BOJ raises the policy interest rate
↓
Interest rates surrounding banks and other institutions tend to rise
↓
This also affects the interest rates when companies and individuals borrow money
↓
This affects consumption, investment, the economy, and prices
This flow is created.
The Bank of Japan also explains that when interest rates rise, the burden on companies and individuals borrowing money increases, which acts to suppress economic activity.
This mechanism, where the effects of monetary policy are transmitted in order to banks, companies, and our daily lives, is called the “transmission mechanism“.
It may sound like a difficult term, but the concept is simple.
When the Bank of Japan moves the base interest rate, that influence gradually trickles down to our everyday finances through banks and other institutions.
This rate hike is not just news for banks.
It is an event that affects our money through deposits, mortgages, corporate borrowing, and the yen exchange rate.
Chapter 2: A Tail Wind for Deposits – What Will Happen to Savings Account Interest Rates?
Those who have money deposited in banks will receive the benefits of the rate hike in a relatively easy-to-understand way.
In fact, Mizuho Bank will raise the interest rate on yen savings accounts from November 2, 2026, from
0.40% per year
↓
0.50% per year
to the new rate.
Rakuten Bank is also raising its standard yen savings account interest rate from 0.40% per year to 0.50% per year.
The long-standing situation where ‘you get almost no interest even if you deposit money in a bank’ is gradually changing.
If you deposit 1 million yen, how much will it grow?
0.40% per year versus 0.50% per year.
You might think, ‘It’s only a 0.1% difference.’
If you consider depositing 1 million yen for one year, the pre-tax interest is:
4,000 yen at 0.40% per year
5,000 yen at 0.50% per year
respectively.
The difference is 1,000 yen per year.
However, in principle, a 20.315% tax is applied to deposit interest.
Therefore, if you deposit 1 million yen for one year, the estimated interest you will receive after taxes is:
Approximately 3,187 yen at 0.40% per annum
Approximately 3,984 yen at 0.50% per annum
is the amount.
In other words, for 1 million yen, the interest gained after taxes is approximately 797 yen.
While the amount is not large, it shows that the change of “rising deposit interest rates” is beginning to reach actual household finances.
Even if interest rates rise, the value of money does not necessarily increase
Another concept to keep in mind here is real interest rates.
Simply put, the real interest rate is the interest rate calculated by subtracting the impact of inflation from the nominal interest rate.
For example, even if the money in your bank account increases slightly, if the prices of groceries and daily necessities rise at a faster rate, you will be able to buy fewer things with the same amount of money.
According to the Consumer Price Index for August released by the Ministry of Internal Affairs and Communications on September 18, 2026, the general index rose by 1.9% compared to the same month of the previous year.
Meanwhile, the ordinary deposit interest rate announced this time is 0.50% per annum.
Since these two have different timeframes, you cannot simply subtract them to calculate a “percentage loss.”
However,
in a state where the inflation rate exceeds the deposit interest rate, even if your account balance increases, the real purchasing power of your money may decrease
is a point worth remembering.
The rise in deposit interest rates is a welcome change for those who save money.
However,
“higher interest rates mean your asset value will also increase if you keep it in a savings account”
cannot be said for certain.
When looking at interest rates, it is easier to understand the meaning of the news if you look not only at the numbers themselves, but also at how much prices are rising.
Chapter 3: Headwinds for Mortgages – Beware of the ‘Repayment Amount Stays the Same’ Myth
One thing to be particularly careful about with interest rate hikes is variable-rate mortgages.
On September 18, 2026, Mitsubishi UFJ Bank announced that it would revise the base rate for variable-rate mortgages starting December 1, following an increase in the short-term prime rate.
However, just because interest rates have risen does not necessarily mean that your monthly repayment amount will increase immediately.
What you need to know here are the
‘5-year rule’ and ‘125% rule’
.
The 5-year rule is a mechanism where, even if interest rates change, the monthly repayment amount generally remains unchanged for five years.
The 125% rule is a mechanism that limits the new repayment amount to within 125% of the previous amount when the repayment amount is reviewed after five years.
For example, if you are paying 100,000 yen per month, a mortgage to which the 125% rule applies will ensure that the next repayment amount does not exceed 125,000 yen when it is reviewed.
At first glance, this seems reassuring, but there is a point to be aware of here.
When interest rates rise, even if the repayment amount remains the same, the proportion of that amount going toward interest increases.
In other words,
the repayment amount stays the same
↓
interest increases
↓
the principal becomes harder to pay down
is what this means.
“Since my withdrawal amount hasn’t changed, there is no impact from the interest rate hike.”
That is not necessarily the case.
What happens with a 40 million yen mortgage?
Mizuho Research & Technologies has calculated the impact on mortgage loans under the following conditions.
Loan amount: 40 million yen
Repayment period: 35 years
Repayment method: Equal principal and interest repayment
Initial interest rate: 1.20% per annum
From the second year: 1.45% per annum
This is a case where the interest rate rises by 0.25 percentage points.
If the 5-year rule is applied, the monthly repayment amount will remain unchanged at approximately 117,000 yen from the first to the fifth year.
However, in the sixth year,
approx. 117,000 yen per month
↓
approx. 122,000 yen per month
This is estimated to be an increase of approximately 5,500 yen per month.
That is approximately 66,000 yen per year.
In this model case, the total repayment amount over 35 years is estimated to increase by approximately 1.97 million yen compared to if the interest rate had not risen.
Of course, these figures do not apply to all mortgage loans.
The impact varies depending on the loan amount, remaining repayment period, interest rate, and repayment method.
Even so,
even a 0.25 percentage point interest rate hike can lead to a significant difference in the burden over a long repayment period
serves as a guideline.
What you should know about “unpaid interest”
Furthermore, if interest rates rise significantly, “unpaid interest” may occur.
For example, this happens if your monthly repayment is 100,000 yen, but the interest generated that month alone is 110,000 yen.
Even if you pay the full 100,000 yen, 10,000 yen in interest remains.
This unpaid portion is known as accrued interest.
MUFG Bank explains that for variable interest rates with equal principal and interest repayments, if the interest exceeds the repayment amount, the excess is deferred to the following month or later.
However, this does not mean that accrued interest will immediately occur just because of this interest rate hike.
Accrued interest is a mechanism that can occur if the applicable interest rate rises significantly and the monthly interest exceeds the repayment amount itself.
There is no need to be overly afraid; it is enough to simply know that such a mechanism exists.
Also, the 5-year rule and 125% rule do not apply to all mortgages.
Even at MUFG Bank, they apply to variable interest rates with equal principal and interest repayments, but they do not apply to equal principal repayments.
For your own mortgage,
current applicable interest rate
repayment method
interest rate review timing
presence or absence of the 5-year rule and 125% rule
it is reassuring to check these.
Chapter 4: The Yen Weakened Despite the Rate Hike? Understanding ‘Market Pricing’
When the Bank of Japan raises interest rates,
‘Since Japanese interest rates have risen, the yen will appreciate.’
one is tempted to think.
It is true that an increase in Japanese interest rates is one factor that leads to a stronger yen.
However, on September 18, 2026, after the Bank of Japan raised the policy interest rate to 1.25%, the yen was sold instead.
The dollar-yen exchange rate moved toward a weaker yen, reaching 158.05 yen per dollar at one point.
A term you should know here is
‘market pricing’
is.
The market is moving even before the announcement.
In simple terms, market pricing in means
a state where investors are already buying and selling based on their expectations of the result before it is actually announced.
is.
For example, suppose it is almost certain that a certain game will have a price increase next month.
Even if it is officially announced on the day of the price increase,
the reaction will be
as expected,
and it will not come as a big surprise.
The financial market is similar.
This Bank of Japan rate hike was largely anticipated even before the announcement.
Therefore,
the fact that the Bank of Japan raised rates to 1.25% alone
was not enough to trigger significant buying of the yen.
Furthermore, this decision was not unanimous; it was 7 to 2.
In the market,
it is not just about whether they raised rates this time,
but also about whether they will continue to raise rates in the future,
and at what pace they will raise them.
to look at.
In the market, it is important to consider not only “what was announced,” but also “how much of a difference there was between the prior expectations and the actual results.”
What you should remember from this Bank of Japan rate hike is
a rate hike does not always mean a stronger yen
that.
Interest rates are an important factor in moving the yen exchange rate, but exchange rates are not determined by a single factor alone.
When watching the news,
not only “what was announced”
but also
to what extent the results were anticipated in advance
will make market movements a little easier to understand.
Chapter 5: What Will Happen to Stocks and NISA? Don’t Decide to Buy or Sell Based Solely on Rate Hikes
When the Bank of Japan raises interest rates,
“Won’t stock prices fall?”
“Should I sell my NISA holdings?”
some people might worry.
It is true that when interest rates rise, the burden on companies to borrow money increases, which can be a negative factor for stock prices.
However,
a rate hike does not always mean that stock prices will fall
is not necessarily true.
In fact, the Nikkei Stock Average on September 18, 2026, continued to rise even after the Bank of Japan’s decision to raise interest rates, closing at 65,018.95 yen, up 882.70 yen from the previous day.
Stock prices rose on the very day of the rate hike.
Stock prices are not determined by interest rates alone.
Various factors such as corporate performance, the yen exchange rate, overseas markets, the economy, and future interest rate forecasts all influence them simultaneously.
Therefore,
“Sell because the Bank of Japan raised interest rates”
it is important to be cautious about making decisions based on a single piece of news.
Think of NISA with a longer-term perspective than “daily price movements”
For those building assets using NISA, what is important is the concept of
long-term, installment, and diversified investment
.
The Financial Services Agency also promotes these three as the basics of asset formation.
Long-term investment means continuing to manage investments over a long period.
Installment investment means investing a fixed amount regularly.
Diversified investment means investing in multiple assets and regions rather than concentrating on a single company or country.
With long-term investment, you can also expect the effect of
compound interest
.
Compound interest is a mechanism where the profits gained from investment are added to the principal and reinvested.
However, using NISA does not guarantee a profit.
Stocks and investment trusts carry the risk of losing principal.
That is precisely why,
selling just because the Bank of Japan raised rates once
or buying in a rush because stock prices went up
is not the way to go; instead of reacting only to short-term news, it is important to keep the basics of long-term, installment, and diversified investing in mind.
A rate hike is merely one factor that moves stock prices.
Chapter 6: So, What Should I Do Now?
Just because the Bank of Japan has raised rates, there is no need to immediately change your mortgage or investment strategy based solely on the news.
First, it becomes easier to understand if you think about dividing your money into three categories.
Money you have borrowed
Money you have deposited
Money you are growing
These are the three.
First, check these three things.
If you have a mortgage, check:
Your current applicable interest rate
Whether it is a variable or fixed interest rate
Whether it is equal principal and interest repayment or equal principal repayment
When the next interest rate review is
Whether the 5-year rule or 125% rule applies
Check how much your current loan balance is.
Make sure to confirm this.
Following this interest rate hike, MUFG Bank will revise its base rate for variable-rate mortgages starting December 1, 2026.
However, for those who have already taken out a mortgage, the timing of the revision depends on the type of variable-rate contract they have.
In other words,
it does not mean that “once December arrives, the repayment amounts for all mortgage holders will rise simultaneously.”
This is not the case.
Checking your own contract details is the most important thing.
For those with savings, check:
Ordinary deposit interest rates
Time deposit interest rates
When you plan to use that money
Confirm these points.
Following this interest rate hike, some banks have actually begun raising their ordinary deposit interest rates.
Even if you have been using the same bank for a long time, it is worth checking the interest rates once.
However, you do not need to choose a bank based solely on interest rates.
Salary transfers, utility bill payments, and ATM accessibility are also important in daily life.
For those investing through NISA or similar accounts,
check “how many years from now will I use this money?”
Confirm this.
The Financial Services Agency considers long-term, installment, and diversified investment to be the foundation of asset formation.
Therefore, rather than looking at a single interest rate hike and deciding to
“sell everything”
or “buy right now,”
it is more important to confirm your own goals and investment horizon.
Is this money you plan to use within a few years?
Is it money for 10 or 20 years from now?
That alone changes the actions you should take.
What is important with this interest rate hike is
not to act immediately upon seeing the news, but to take a moment to review your own finances.
For mortgages,
“When will my interest rate change?”
For deposits,
“What is my current interest rate?”
For NISA,
“When will I use this money?”
To start, simply confirming these three things is enough.
Interest rate news may seem difficult, but
if you divide it into money you are borrowing, money you are depositing, and money you are growing,
it becomes easier to see what you need to do.
Summary
On September 18, 2026, the Bank of Japan raised its policy interest rate to approximately 1.25%.
The most important thing to remember about this rate hike is that
even with the same rate hike, the impact varies from person to person
.
For those who have money deposited in banks, there is a benefit in the form of higher deposit interest rates.
On the other hand, those using variable-rate mortgages need to check future interest rates and their repayment burden.
Regarding stocks and NISA, you should not decide to sell or buy based solely on the news that the Bank of Japan has raised interest rates.
There is no need to memorize all the difficult financial terms.
If you think about your money by dividing it into three categories:
money you borrow
money you deposit
money you invest
, it becomes easier to see the impact of the rate hike.
Instead of just looking at the figure of “1.25% policy interest rate,”
thinking about how it relates to your own money
is the first step to successfully navigating changes in interest rates.