[Organized in 5 Minutes] Why does the Bank of Japan continue to raise interest rates? How will our lives change with a 1.25% interest rate?
When watching the news, the term “interest rate hike” is something we see often these days.
“I heard the Bank of Japan raised interest rates, but does that have anything to do with me?”
Many people are probably feeling that way.
In fact, changes in interest rates relate to various parts of our lives, including mortgages, savings, corporate management, prices, and even the yen exchange rate.
Today, I will summarize in 5 minutes why the Bank of Japan is raising interest rates and what kind of impact we can expect on our lives from here on out.
To begin with, what happened?
The Bank of Japan raised its policy interest rate to 1.25% at the Monetary Policy Meeting on September 18, 2026.
This is the highest level in 31 years.
And today, September 28.
The Bank of Japan released the “minutes” of the Monetary Policy Meeting held on July 30 and 31.
Simply put, the minutes are…
“a summary of what kind of discussions were held within the Bank of Japan regarding the economy and interest rates.”
That is what they are.
What was revealed this time is that within the Bank of Japan, there was already a shared recognition as of July that they were gradually shifting toward policy management that is conscious of anchoring the inflation rate at around 2%.
Furthermore, there were also opinions supporting an acceleration in the pace of interest rate hikes.
Why is the Bank of Japan raising interest rates?
One of the major reasons is “prices.”
When prices continue to rise, you can buy less with the same 10,000 yen.
Therefore, the central bank tries to curb excessive price increases by raising interest rates to calm economic activity to a certain extent.
To put it quite simply,
Raising interest rates
↓
The cost of borrowing money increases
↓
Consumption and investment are slightly suppressed
↓
Works to curb price increases
This is the mechanism.
Of course, it is not as simple as saying that raising interest rates will always lower prices.
Various factors such as crude oil prices, exchange rates, wages, and the overseas economy influence prices.
Impact on our lives (1): Mortgage loans
The most obvious impact is on mortgage loans.
Especially with variable-rate mortgages, if the Bank of Japan’s policy rate hike spreads to financial institutions’ lending rates, repayment burdens may increase in the future.
For example,
It is no longer guaranteed that
“the current monthly repayment amount will continue as is forever.”
However, when and to what extent this is actually reflected in mortgage interest rates depends on the financial institution and the terms of the contract.
Impact on our lives (2): Deposit interest rates
On the other hand, rising interest rates are not all bad.
Interest rates on bank savings and time deposits are also more likely to rise than before.
It can be said that the environment is gradually changing from the long-lasting “era where you get almost no interest even if you deposit money in a bank.”
Impact on our lives (3): Yen exchange rate and prices
Interest rates are also related to the yen exchange rate.
Generally, if Japanese interest rates rise and the interest rate gap with overseas narrows, it becomes a factor that makes the yen easier to buy.
If it moves in the direction of a stronger yen, it could be a factor in curbing price increases for goods imported from overseas, such as crude oil and food.
However, exchange rates are not determined solely by Japanese interest rates.
In fact, even after the Bank of Japan raised the policy interest rate to 1.25% on September 18, there were moments when the yen fell, and the market is also paying attention to the Bank of Japan’s future policies and U.S. interest rate trends.
“Raising interest rates does not mean life will become easier.”
This is the important part.
Just because interest rates are being raised to curb prices does not mean that products at the supermarket will immediately become cheaper.
On the contrary,
for people who have taken out home loans or
companies that have received loans from financial institutions
there is a possibility that the burden will increase.
On the other hand,
higher deposit interest rates,
the curbing of the yen’s depreciation,
and the suppression of price increases
could also be potential outcomes.
In other words, raising interest rates has both benefits and burdens.
Things to watch for from now on
What is important is
whether the Bank of Japan will raise interest rates next
.
However, what was released this time is the summary of opinions from the meeting held on July 30 and 31.
A new interest rate hike was not decided today, September 28.
The current policy interest rate of 1.25% was decided at the meeting on September 18.
Going forward, the key will be what kind of judgment the Bank of Japan makes while observing prices, wages, the yen exchange rate, and overseas economies.
In the Bank of Japan’s future announcements,
“What is happening with prices?”
“What opinions are being expressed regarding additional interest rate hikes?”
Just by looking at these two points, the news should become much easier to understand.
Today’s news in a nutshell
The Bank of Japan has entered a stage where it is more conscious of “interest rate policy to stabilize price increases.”
And that impact is gradually spreading to our daily lives through home loans, savings, and the yen exchange rate.
News is not just about knowing it,
“how it relates to your own life”
Once you understand that, your perspective will change significantly.
In “After-Work News Summary,” we organize political, economic, and social news from the background, using as little jargon as possible.
It has been a while since the last update, but I will continue to post little by little.
I would be happy if you could follow me and read this in the 5 minutes after work.
[Reference]
Bank of Japan “Minutes of the Monetary Policy Meeting”
Bank of Japan “Change in the Guideline for Market Operations”
Reuters September 18, 2026 / September 28, 2026 reports