[The Critical Point of the Global Economy] Why does the world shake when interest rates rise by just 1%? [2026/10/24]
Why does the world shake when interest rates rise by just 1%? π The true nature of “just 1%”
Interest rates rise by 1%.
Looking at the number alone, it seems like a rounding error. π
However, this moves stock prices, mortgages, bank earnings, and even national finances all at once. Why does such a small number as 1% have such a widespread effect? The reason is that
interest rates are not just the price of borrowing money. They are more than that. This time, we will break down how that influence spreads, step by step.
β When you hear “interest rates have risen,” check these 3 things first π
When reading news about interest rates, the first thing to look at is what kind of interest rate it is.
The “policy rate” set by the central bank forms the foundation for short-term interest rates. On the other hand, the “government bond yield” is a value determined by the market, which, in addition to the policy rate, incorporates future inflation expectations, supply and demand for government bonds, and a premium for holding long-term assets (term premium).
Therefore, long-term interest rates can rise even if the policy rate remains unchanged, and conversely, long-term interest rates may not move much even if rates are hiked. π€·
The three points to check are what kind of interest rate, what the duration is, and why it moved. It is the same as being told “CPU usage is up” on a monitoring tool; you cannot make a judgment without knowing which server it is or what the minute-average is. π₯οΈ
β If you borrow 100 billion yen, 1% is 1 billion yen per year π°
Now, let’s look at the actual burden.
If a company borrowing 100 billion yen on a variable rate sees its interest rate rise by 1 percentage point, and the balance remains the same, the annual interest payment will simply increase by 1 billion yen.
Even if the interest rate margin is small, the multiplier is large, so the amount cannot be ignored.
However, if you have borrowed at a fixed interest rate, you are generally not affected by this during the contract period. The actual increase depends on the contract terms and the interest rate review period. The same applies to the government; the interest rates on existing fixed-rate government bonds do not change in line with market rates, and the effect is felt gradually through refinancing and new issuance. β±οΈ
β Stock prices move based on the “future discount rate” π·οΈ
Even if you have no debt, interest rates still have an effect. Through the discount rate used for stock valuation.
One million yen in the future is worth less than one million yen today. This is because you can grow it by investing it, and the future is uncertain. Therefore, we use a “discount rate” when converting future profits into present value. When interest rates rise, the discount rate also rises, and the present value becomes smaller even for the same future profit.π
Companies where most of the profits are in the future are particularly susceptible. Stocks with high growth expectations tend to be more sensitive. However, if the economy is strong and interest rates rise, the expectation of increased profits can sometimes offset the rise in the discount rate. Interest rates are not the only thing that moves stock prices.
This perspective also applies to AI-related stocks. The growth of AI demand and the rise in that company’s stock price are different matters. The reaction to interest rates changes depending on how much expectation is already priced into the stock.π€
β Bonds are a seesaw of interest rates π’
Bonds are sensitive to interest rates. When market interest rates rise, the price of already issued fixed-rate bonds falls. This is because if new bonds offer a higher yield, old bonds will not find buyers unless their prices drop.
A guide to the magnitude of this reaction is duration. For a bond with a modified duration of 8, when the yield rises by 1 percentage point, the price will roughly fall by about 8%. This is an approximation based on small changes, but it means 1% turns into 8%.π³
The problem is banks and insurance companies that hold large amounts of these bonds. When valuation losses put pressure on capital and funding constraints are added, they may be forced to sell. If everyone sells at the same time, prices will fall further and market liquidity will dry up. However, whether it triggers a chain reaction depends on the contents of the assets held, accounting treatment, and capital buffers. Rather than the loss itself,
who bears the loss and how they act determines the ripple effect.
β For households, the “contract” changes their fate even with the same interest rate π
The impact on households is not uniform.
Variable-rate mortgages may see interest payments increase each time they are reviewed. If it is a fixed-rate mortgage, the repayment amount during the contract period is not linked to market interest rates.
On the other hand, if deposit interest rates rise, it is a plus for depositors and those making new investments. A rise in interest rates also involves a shift of money from borrowers to lenders. However, if households burdened by repayments
tighten their purse strings, it will affect corporate sales. If sales weaken, capital investment and hiring will be suppressed, which will circulate throughout the entire economy.π
β A crisis occurs when it “cannot be absorbed”π§
A rise in interest rates itself is not a crisis. The turning point is whether there is the capacity to absorb it.
If debt is high, refinancing is concentrated in a short period, and economic deterioration is added to the mix, the cash flow of companies and governments will become strained. For financial institutions, if a decline in bond prices and an outflow of deposits occur simultaneously, the question of whether they can continue to hold assets arises. Conversely, if maturities are spread out, there is a high proportion of fixed-rate debt, and
there is a surplus of cash and capital, it can be absorbed over time. Even in phases where revenue and income are growing, the burden is easier to offset.
It is not the case that a rate cut solves everything. Easing makes financing easier, but it must be balanced with inflation control. If repayment capacity itself is lost, lowering interest rates alone will not plug the hole.π³οΈ
β Conclusion: The 1% question is “who will bear it”π―
Interest rates are not a power switch that moves the world all at once. Companies, governments, households, and financial institutions all hold different contracts and assets, and
a 1% change propagates between them at different speeds.
Therefore, what you should look at in interest rate news is not just “by how many percent it rose”. Is the reason for the interest rate hike
the strength of the economy, or anxiety over fiscal policy or government bond supply and demand? And, that burdenβwho, under what conditions, and when will they bear it? Only by looking at this can you understand the weight of 1%.βοΈ
by Ray