How Interest Rate Hikes and Price Pass-Through Affect Corporate Performance: The Profit Mechanisms Creating Industry Differences

Interest rate hikes and price pass-through reach corporate profits through different channels

Corporate performance during a period of interest rate hikes depends on whether cost increases can be reflected in sales prices and whether the increased interest payments can be absorbed. The former is price pass-through, while the latter is a matter of financing. Separating the two reveals why the burden differs by company, even within the same industry.

On September 18, 2026, the Bank of Japan announced its decision to set the target for the policy interest rate at approximately 1.25%. This applies to the “uncollateralized overnight call rate,” at which financial institutions lend and borrow funds from each other until the next day. This is not a decision to set corporate borrowing rates uniformly at 1.25%. [Source: Bank of Japan, “Change in the Guideline for Market Operations,” announced September 18, 2026 / Accessed: October 12, 2026] [boj.or]

Meanwhile, the price pass-through rate from the Small and Medium Enterprise Agency’s March 2026 survey was 54.2%. This is an indicator showing the extent to which cost increases were reflected in sales prices, not the percentage of companies that raised prices. The survey was distributed to 300,000 small and medium-sized enterprises on the receiving end of orders, and 69,625 companies responded. It is necessary to distinguish between the number of companies to which it was distributed and the number of responding companies. [Source: Ministry of Economy, Trade and Industry, “Results of the Price Negotiation Promotion Month (March 2026) Follow-up Survey,” announced June 26, 2026 / Accessed: October 12, 2026. Summarized by the author based on the published document] [meti.go]

This survey covers the situation prior to the September interest rate hike. Simply lining up the price pass-through rate and the interest rate hike is not enough to explain that “the pass-through rate changed due to the interest rate hike” or “industry profits decreased after the interest rate hike.”

The background involves the issue of how much of the increase in raw material costs, labor costs, and energy costs can be recovered through negotiations with business partners. The government designates March and September each year as “Price Negotiation Promotion Month.” However, the opportunity to negotiate and the amount actually reflected in prices are different things. [Source: Ministry of Economy, Trade and Industry, same announcement, announced June 26, 2026 / Accessed: October 12, 2026] [meti.go]

When looking at performance, we distinguish between operating profit, which represents earnings from core business, and ordinary profit, which also reflects interest payments. Even if core business profits are protected by price increases, if interest payments rise, the remaining profit will decrease. If sales volume changes, the effect of the price increase itself also changes.

This article is not intended to identify industries that will see profit growth in the future. Rather than ranking by industry, it deals with the mechanisms by which the impact on profits differs depending on cost structure, contract terms, and transaction stage. From here, we will look specifically at what price pass-through protects and where the burden of interest rate hikes remains.

Here, we will delve into the background and mechanisms of the theme, and organize
the differences from the past, the impact on stakeholders, specific examples, and points to note.

We will explain it so that you can understand not only the overview, but also
“how it moves,” “what is different,” and “how it relates to you.”