Is the Rise in Interest Rates a Return to '1990'?—Reflecting on 40 Years of Japanese Long-Term Interest Rates, Recessions, and Land Prices

In September 2026, Japan’s 10-year government bond yield rose to **3.10%**. This is the highest level in about 30 years, since 1996. Considering that it was about half this level a year ago, the pace of the increase can by no means be called gradual.

With expectations for additional interest rate hikes by the Bank of Japan growing, voices of concern are being heard, asking, ‘Are we following the same path as the sharp interest rate spikes around 1990, the eve of the bubble burst?’ In this article, I will organize how similar and how different this current phase is to ‘1990’ by overlaying the trends of interest rates, recessions, and land prices over the past 40 years.

What is happening now

The background to the current rise in long-term interest rates is the gradual interest rate hikes by the Bank of Japan. The policy rate has already been raised to 1.25%, and Nomura Securities’ main scenario expects additional hikes to 1.25% by the end of 2026 and 1.50% by the end of 2027 (with 1.75% also in view in the upside risk scenario). Long-term interest rates have risen in anticipation of these policy rate forecasts.

Is ‘1990’ really near?—40 years seen through interest rate charts

First, let’s look at the trend of 10-year government bond yields over the past 40 years.

Long-term interest rates, which had fallen to 2.55% in May 1987, surged to the 8% range in just over three years. The peak of the bubble era was September 1990. The magnitude and speed of the rise at that time were incomparably more rapid than the current rate hike phase. This was because the Bank of Japan was implementing monetary tightening at an extremely fast pace, raising the official discount rate from 2.5% to 6% in a short period.

After that, interest rates entered a long-term downward trend, and with the ‘VaR shock’ where they fell below 0.5% in 2003 and the introduction of the negative interest rate policy in January 2016, a historic low-interest rate environment continued for about 30 years. The current level of 3.10% can be said to be a movement symbolizing the end of this long era of low interest rates.

What is important is the gray bands in the graph, which are the recession periods officially certified by the Cabinet Office’s ESRI (Economic and Social Research Institute). Japan has experienced recessions many times during this period: 1991–93, 97–99, 2000–02, 2008–09 (Global Financial Crisis), 2012–13, and 2018–20.

There is an important fact that becomes clear here: the ‘primary causes’ of these recessions are actually different in each case.

• The recession of 1991–93 was directly triggered by the Bank of Japan’s rapid interest rate hikes (= bursting the bubble).

• The recession of 1997–99 was primarily caused by the consumption tax hike, the Asian financial crisis, and financial system instability, and interest rate levels were already falling.

• The recession of 2000–02 was a demand shock from overseas, known as the bursting of the IT bubble.

• The recession of 2008–09 was a global financial crisis known as the Lehman Shock, and the Bank of Japan actually kept interest rates steady.

In other words, ‘interest rates rising/falling’ and ‘a recession occurring’ are not necessarily linked in a straight line, except for the case of the early 1990s. It is premature to simply conclude that a gradual pace of interest rate hikes like the current one will directly lead to a sharp 1991-style recession.

What about land prices?—The reality that a ‘60% decline’ still persists

Next, let’s look at the national average land price index (conceptualized with the 1991 peak = 100).

After the bubble burst, land prices fell by about 70% in just five years, and it actually took around 15 years for them to stop falling. It is said that they finally bottomed out around 2005, but even after entering a gradual recovery phase from there, the current national average land price remains about 60% lower than the peak level.

Here is another point that is the core of this theme. While land prices on a national average still carry the shadow of the bubble era, only condominium prices in the city center are showing a completely different movement—a ‘polarization.’ The used condominium price index for Southern Kanto (2010 = 100) reached 218.1 as of September 2025, which significantly exceeds the 123.2 of the detached house index. It is a structure where only the city center condominium market continues to rise independently, despite the nationwide stagnation in land prices.

Practical impact on housing loans

How will future additional interest rate hikes ripple through actual household finances?

For variable-rate mortgages, the two rate hikes expected during 2026 will be reflected in stages, with an increase of approximately 0.25% to 0.5% per year anticipated over the next year (most banks typically revise their base rates in October and April). Since fixed-rate mortgages (such as Flat 35) are directly linked to long-term interest rates, it is recommended that financial plans incorporate an additional increase of about 0.5% to 1% for these.

Whether you are purchasing a new home or considering refinancing with a variable rate, we have entered a phase where simulations must be based on the premise of increased repayment burdens.

Summary: Similarities and Differences

Comparing the current rise in interest rates to the period around 1990, we can organize the situation as follows.

The similarities lie in the fact that long-term interest rates are at a turning point from historical lows, and the Bank of Japan is steering toward monetary tightening. On the other hand, the differences are that the current pace of rate hikes is far more gradual compared to the sharp surge between 1987 and 1990 (+5.5% in just over three years), and national land prices have already adjusted to 60% below their peak, meaning they are not in the ‘high-price zone about to collapse’ as they were in 1990.

However, there are asset classes, such as the metropolitan condominium market, where overheating has been pointed out in some areas, so the impact of rising interest rates on household finances and specific real estate segments requires close monitoring moving forward.