What Does a 3% 10-Year Interest Rate Mean? Why There Is No Single 'Japanese Interest Rate'
On September 24, 2026, lining up Japan’s interest rates reveals a somewhat curious landscape.
The short-term interest rate guided by the Bank of Japan is around 1.25%. Meanwhile, in the government bond market, the 2-year rate was 1.912%, the 5-year was 2.400%, the 10-year was 3.073%, the 20-year was 3.887%, the 30-year was 4.115%, and the 40-year was 4.103%. Even though it is the same Japan and the same day, these ‘interest rates’ differ significantly.
If you only look at the news that ‘the 10-year interest rate has reached 3%,’ you miss this point. The Bank of Japan directly and strongly guides short-term interest rates, while long-term interest rates like the 10-year or 30-year are formed by market participants incorporating expectations for future interest rates, prices, and the supply and demand of government bonds.
Starting with this installment, we will consider the ‘normalization of interest rates’ in Japan over several parts. The first point we want to grasp in this first installment is that there is no single ‘Japanese interest rate’.
Furthermore, even with the same interest rate hike, fixed-rate and variable-rate loans are affected differently. Understanding these two points helps clarify why the impacts on deposits, mortgages, bonds, stocks, real estate, and the yen do not occur all at once or in the same direction.
※ As a general rule, the figures used are those confirmed as of September 24, 2026. Market interest rates fluctuate daily.
What is this ‘3%’?
This 3.073% is the constant maturity yield of 10-year government bonds published by the Ministry of Finance. Simply put, it is an indicator showing the yield at which Japanese government bonds with a remaining maturity of about 10 years are being traded in the market.
This is not the coupon rate written on the government bond itself. It is also different from mortgage interest rates or the assumed interest rates used by the government when preparing its budget.
Nevertheless, the 10-year interest rate is important because it is one of the representative ‘prices of long-term money’ in the Japanese economy. When companies borrow money for a long period, when designing fixed-rate mortgages, or when considering the value of real estate and stocks, the level of long-term interest rates serves as the foundation for various price formations.
However, just because the 10-year interest rate is 3% does not mean that the price of money across Japan becomes 3% all at once.
Short-term is the BOJ, long-term is the market—but they are not completely separated
On September 18, 2026, the Bank of Japan decided on a policy to keep the uncollateralized overnight call rate at around 1.25%. This is a very short-term interest rate that the Bank of Japan strongly guides through monetary policy.
Meanwhile, the 10-year government bond yield on the same day, September 24, was 3.073%. The difference from the policy interest rate is 1.823 percentage points by simple calculation.
This difference cannot be read simply as ‘future Bank of Japan rate hike expectations.’ The 10-year interest rate reflects multiple factors, including not only expectations for future short-term interest rates but also future inflation, a premium for locking up funds for a long period, the supply and demand and liquidity of government bonds, and interest rates overseas, such as in the United States.
Moreover, the Bank of Japan is still buying government bonds. The purchase plan is 2.5 trillion yen per month from July to September 2026, and 2.3 trillion yen per month from October to December.
Therefore, it is not accurate to neatly divide it into ‘the Bank of Japan decides short-term interest rates, and the market completely decides long-term interest rates.’ It is closer to reality to think that the shorter the term, the more easily it is directly influenced by Bank of Japan policy, and the longer the term, the more factors such as future policy, prices, supply and demand, and overseas markets come into play.
The ‘speed of change’ is more noteworthy than the 3% itself
So, is a 10-year interest rate of 3% historically an abnormal level?
Tracing back the same series from the Ministry of Finance, it was 6.619% at the end of December 1990 and 3.165% at the end of 1995. Conversely, it fell to -0.178% on July 29, 2016.
After that, it reached 0.750% at the end of March 2024, 2.066% at the end of 2025, and 3.073% on September 24, 2026. While 3% is a record high, it is not an interest rate that Japan has never experienced before.
Rather, what I want to focus on this time is the speed of change from near-zero levels. From 0.750% at the end of March 2024 to 3.073% on September 24, 2026, it rose by more than 2.3 percentage points in about two and a half years.
For a long time, corporate borrowing, home loans, investor asset allocation, and the valuation of stocks and real estate in Japan have been built on the premise that there is ‘almost no interest rate.’ That premise has begun to change in a relatively short period.
Therefore, what is important is not just the question of ‘is 3% high,’ but the question of how things built on the premise of low interest rates will adapt to this speed of change.
Of course, one cannot simply compare 1995 and 2026 directly. The environment is vastly different now compared to then, including the scale of the Bank of Japan’s government bond holdings, prices, wages, the composition of financial products, and overseas investment by investors. It is more accurate to think that only the level of interest rates has approached that of about 30 years ago, rather than saying we have ‘returned to 1995.’
Why did long-term interest rates rise?
Reading this far, you might wonder, ‘So, in the end, why did the 10-year interest rate rise to 3%?’ The simplest explanation is ‘because the Bank of Japan raised interest rates.’
However, in reality, it is a bit more complex. Views on additional interest rate hikes by the Bank of Japan, the outlook for prices and wages, government bond issuance, the reduction in the Bank of Japan’s government bond purchases, demand from domestic investors such as banks and life insurance companies, the movements of overseas investors, and furthermore, interest rates overseas, including in the United States. These factors all have an impact simultaneously.
The national consumer price index for August 2026 rose 1.7% year-on-year, excluding fresh food. This figure is lower than the 10-year government bond yield of 3.073%, but one cannot simply subtract the two and think of the ‘real interest rate as about 1.4%.’
1.7% is the inflation rate for the past 12 months. If comparing it with the 10-year interest rate, one should ideally consider the inflation rate that the market expects over the next 10 years.
With this data alone, it is impossible to break down the causes of the rise in long-term interest rates into ‘what percentage is inflation, what percentage is the Bank of Japan, and what percentage is fiscal policy.’ Therefore, this article will not pin down a single cause.
When looking at interest rates, it is important to think about ‘what happened’ and ‘why it happened’ separately.
It does not reach households at the same speed
Interest rate normalization is already beginning to reach households as well.
According to Bank of Japan statistics for September 2026, the average displayed interest rate for ordinary deposits at bank counters was 0.322%, and for 1-year time deposits of 10 million yen or more, it was 0.472%. On the other hand, for the Japan Housing Finance Agency’s Flat 35, the most frequent interest rate for a loan ratio of 90% or less and a repayment period of 21 to 35 years is 3.460%.
Here too, one cannot simply line up the numbers and make a direct comparison. This is because deposit interest rates are monthly averages, Flat 35 is a long-term fixed-rate home loan with specific conditions, and the 10-year government bond is a yield traded in the market, each having different definitions.
Even so, one important thing is clear: interest rate hikes are not transmitted to household interest income and interest payments at the same speed.
Regarding home loans, here we need to think about variable interest rates and fixed interest rates separately. Variable interest rates are relatively susceptible to the influence of short-term interest rates and bank base rates. On the other hand, fixed interest rates are more susceptible to the influence of medium- to long-term market interest rates and the funding costs of financial institutions.
Therefore, even if the Bank of Japan has not yet moved its policy interest rate, if the market anticipates future rate hikes and long-term interest rates rise first, the interest rate on newly borrowed fixed-rate home loans may rise first.
Regarding the ‘fixed’ mentioned here, some caution is also required. If it is a full-term fixed-rate type, the applied interest rate after the contract is, in principle, unchanged until the loan is fully repaid. On the other hand, a fixed-period selection type fixes the interest rate only for a set period, such as 5 or 10 years, and once that period ends, the interest rate conditions are reviewed again.
In other words, it is not the case that ‘fixed interest rates never change.’ Even with a fixed-rate mortgage for the entire term, the fixed rate offered to new borrowers changes depending on market conditions. With a fixed-period selection type, the interest rate may change after the fixed period ends.
Variable interest rates also cannot be simply described as ‘if the Bank of Japan raises rates by 0.25%, your repayment interest rate will also rise by 0.25% the next day.’ Due to factors such as each bank’s base rate, preferential rate reductions, interest rate review periods, and rules for changing repayment amounts, there is a time lag before these changes actually affect household finances.
If you were to borrow 30 million yen with a 35-year equal principal and interest repayment plan, the monthly payment would be approximately 99,000 yen at a 2% interest rate, and approximately 115,000 yen at 3%. While this is a hypothetical calculation separate from actual mortgage terms, it shows that a 1-point difference cannot be ignored over a long period.
We will look at the differences between fixed and variable interest rates, as well as the speed at which interest rate hikes are passed on to deposits and mortgages, in more detail next time.
The impact on investors is not one-directional either
For investors, too, rising interest rates are not simply ‘positive’ or ‘negative.’ Bonds are an easy example to understand.
As a rule, the price of already issued bonds falls when market interest rates rise. For a bond with a modified duration of 8 years, if interest rates rise by 1 point, the price portion will fall by approximately 8% as a rough estimate. While this is only an approximation because it does not account for interest or convexity, it gives an idea of how the magnitude of interest rate changes affects prices.
On the other hand, for those buying new bonds, it becomes possible to start investing at a higher yield than before. In other words, the same interest rate hike can be a headwind for existing holders and a future earnings opportunity for new investors.
Furthermore, there are both fixed-rate and floating-rate bonds. Since the interest received on fixed-rate bonds is determined in advance, their relative appeal decreases and their prices tend to fall when market interest rates rise. On the other hand, since the interest rates on floating-rate bonds are reviewed according to certain rules, the impact of interest rate changes on their prices is generally smaller.
Just like with mortgages, ‘fixed vs. variable’ is an important point to consider regarding who is affected and when during a period of rising interest rates. This difference will be covered in more detail in the sessions on Japanese government bonds, U.S. Treasury bonds, government bonds for individuals, and bond funds.
In the stock market, rising interest rates increase the discount rate used to convert future profits into present value, which tends to be a headwind, especially for companies whose growth in the distant future is highly valued. On the other hand, if corporate profits are also growing against a backdrop of economic and price increases, that profit growth may outweigh the impact.
Real estate is the same. If you greatly simplify real estate prices, they can be thought of as Real Estate Price ≒ NOI ÷ Cap Rate. NOI is the net income after deducting operating expenses from rental income, and the Cap Rate is the yield that investors require from a property.
If the Cap Rate rises due to interest rate hikes, there will be downward pressure on prices. However, if rents rise at the same time and NOI increases, that impact can be partially offset.
In fact, according to a survey by the Japan Real Estate Institute in April 2026, the expected yield for offices in Marunouchi and Otemachi was 3.2%, remaining flat for the seventh consecutive period. While this is based on investor surveys rather than actual transaction yields, it is one piece of evidence showing that ‘if government bond yields rise, the required yield for real estate does not necessarily rise by the same amount.’
For banks, too, ‘rising interest rates’ does not always mean ‘increased profits.’ While rising lending rates are a tailwind, deposit interest rates also rise due to competition for deposits. Unrealized losses are more likely to occur on bond holdings, and if the repayment burden on borrowers increases, credit costs may also rise.
The same applies to foreign exchange. On September 18, the day of the Bank of Japan’s policy change, the dollar-yen exchange rate moved in the direction of a weaker yen, from the 156 yen range in the morning of the Tokyo market to the 157 yen range in the evening. However, the U.S. FOMC was also held just before that, so the movement on that day cannot be explained solely by the Bank of Japan’s interest rate hike.
The foreign exchange market is not so simple that the yen will automatically strengthen if Japanese interest rates rise.
5 questions to ask when looking at interest rate news from now on
As we have seen so far, the phrase ‘interest rates have risen’ tells you almost nothing about the impact. When you look at interest rate news from now on, please check the following five points.
-
Which maturity’s interest rate moved?
-
Why did that interest rate move?
-
Is it fixed or variable?
-
Whose assets and liabilities will it affect?
-
When and at what speed will the impact appear?
The figure of a 3% 10-year interest rate is the gateway to understanding this.
What is truly important is that we are transitioning from a world that lasted a long time in Japan where we ‘hardly had to be conscious of interest rates’ to a world where we must once again be conscious of the cost of capital and the future value of money. I believe this is the case.
That change will ripple through deposits, mortgages, bonds, stocks, real estate, corporations, and the government. However, it will not move on the same day, by the same margin, or in the same direction.
That is precisely why we cannot stop at saying ‘interest rates have risen,’ but must instead look at which interest rate is transmitted to whom, through what path, and at what timing. We need to examine these one by one.
Next time, starting from the most familiar topics, I would like to cover ‘what is the difference between fixed and variable interest rates’ and ‘the mechanism by which interest rate hikes reach mortgages.’
Main References
Bank of Japan, ‘Change in Guideline for Market Operations’ (September 18, 2026); Bank of Japan, ‘Purchase Plan for Japanese Government Bonds’ (June 2026); Ministry of Finance, ‘JGB Interest Rate Information’ and ‘JGB Interest Rate Information from 1974’; Statistics Bureau of Japan, ‘August 2026 Consumer Price Index’; Bank of Japan, ‘Average Contract Interest Rates on Deposits’; Japan Housing Finance Agency, ‘Flat 35 Interest Rate Information’; Japan Real Estate Institute, ‘The 54th Real Estate Investor Survey’; Bank of Japan, ‘Foreign Exchange Market Statistics’ (September 18, 2026); Federal Reserve, ‘FOMC Statement’ (September 16, 2026).
*Unless otherwise noted, the interest rate figures and other data in this article use publicly available values confirmed as of September 24, 2026. Since market interest rates fluctuate daily, they may differ from the levels at the time of the article’s publication.