What Happens When Interest Rates Accelerate? The Absolute Gap Between Those Who Lose and Those Who Grow Their Assets in a 'World with Interest Rates'
“Interest rates are rising, but it might not really affect me…” Are you thinking that?
The era of zero interest rates that lasted for many years has come to an end, and the Japanese economy is now at a major turning point. In conclusion, if you remain without any countermeasures, the risk of your household finances being rapidly squeezed due to stagnant wage growth and a sharp increase in mortgage burdens will become extremely high.
However, if you correctly understand the structure and make appropriate preparations, it is possible to turn this into a golden opportunity to not only protect your assets but also significantly increase them. In this article, we will explain in an easy-to-understand manner the ‘four changes’ that rising interest rates have on our money and the asset defense strategies you should take immediately.
[Table of Contents]
1. Why does wage growth stagnate when interest rates rise? The hidden side of the cost increases hitting companies
2. The lies and truths of rising stock prices—3 reasons why ‘high stock prices despite high interest rates’ are occurring
3. ‘Two stock investment strategies’ that demonstrate power in a rising interest rate phase
4. Is ‘just saving’ a loss? Techniques for utilizing government bonds to aim for yields without risk
5. [Danger] Mortgage payments increasing by 100,000 yen per month? Price adjustments looming over the real estate market
6. Summary: 3 asset defense steps to survive in a world with interest rates
1. Why does wage growth stagnate when interest rates rise? The hidden side of the cost increases hitting companies
The harsh reality is that when interest rates rise, it becomes ‘harder for our take-home pay and salaries to increase’.
The reason is that many companies operate their businesses by utilizing borrowings (debt), and rising interest rates become a direct ‘cost increase’ that dramatically squeezes profits.
Specifically, it is estimated that if the Bank of Japan raises its policy interest rate by just 0.25%, approximately 500 billion yen in profits will be wiped out across all domestic companies annually. For example, for a company with 1 billion yen in borrowings, if the interest rate rises from 1% to 3%, the annual interest burden will increase by 20 million yen, from 10 million yen to 30 million yen. Since this is equivalent to the labor costs of four employees with an average annual salary of 5 million yen, companies are forced to move toward postponing new hiring or suppressing labor costs.
Currently, some companies have temporarily increased wages due to price hikes accompanying inflation, but in a phase where inflation settles down and only interest rates remain high, the risk of full-scale wage stagnation hitting will increase.
2. The lies and truths of rising stock prices—3 reasons why ‘high stock prices despite high interest rates’ are occurring
If things went according to the textbook, a seesaw relationship of ‘rising interest rates = falling stock prices’ would hold true. This is because corporate capital investment cools down due to increased borrowing costs, and the economy slows down.
However, currently, despite interest rates rising, an unusual stock price increase is continuing, with the Nikkei Stock Average breaking through 70,000 yen. Behind this seemingly contradictory phenomenon, there are mainly three factors.
1. Structural ‘excess money’
With the establishment of programs like the new NISA, the scale of investment capital flowing into the market as a whole has expanded significantly.
2. Outstanding growth of AI-related stocks
Major large-cap stocks driving the Nikkei Stock Average (such as SoftBank Group, Advantest, and Tokyo Electron) are generating exceptional profits by riding the wave of global AI demand that easily outweighs the increase in interest rate burdens.
3. Boosting the performance of export companies due to the weak yen
As the yen weakens from 100 yen to 200 yen per dollar (for example), the profits of export companies with overseas sales automatically expand significantly when converted into Japanese yen.
In this way, it is not the case that all Japanese stocks are being bought uniformly; the truth is that a select group of excellent stocks, such as AI and mega-trend companies and those benefiting from the weak yen, are powerfully pushing up the market average.
3. ‘Two stock investment strategies’ that demonstrate their power during periods of rising interest rates
While the overall market environment becomes difficult during periods of rising interest rates, significant opportunities arise by identifying stocks that benefit from specific conditions.
Specifically, the following ‘two investment strategies’ are highly effective.
1. Investing in the benefits of rising interest rates and mega-trends
The financial sector, such as bank stocks, which see an increase in interest income (interest margins) due to rate hikes, receives direct benefits. Additionally, mega-trend stocks like AI and semiconductor-related stocks, which can easily absorb increased interest burdens due to explosive global demand, can be expected to show strong growth even in a rising interest rate environment.
2. Targeting ‘high-dividend stocks’ during stock price adjustment phases
When interest rates on risk-free assets like U.S. Treasury bonds rise to 4%–5%, a phase occurs where stock prices are temporarily sold off and decline. Since dividend yields rise relatively when stock prices fall (e.g., a 4 yen dividend on a 100 yen stock equals 4%, but if the price falls to 50 yen, the yield doubles to 8%), this becomes an excellent opportunity to acquire high-quality, high-dividend stocks at a low price.
In an era where it is difficult to get salary increases, incorporating high-quality, high-dividend stocks with strong dividend maintenance capabilities and mega-trend stocks into your portfolio to build a pillar of passive income is a powerful countermeasure for income gains.
4. Is ‘just keeping money in savings’ a loss? How to use government bonds to aim for yields without risk
Rising interest rates are a headwind for those borrowing money, but they are a perfect tailwind for those investing or saving money.
However, just leaving deposits in city banks or similar institutions will yield very little. Therefore, you should utilize ‘government bonds (Japanese government bonds, U.S. Treasury bonds),’ which can securely ensure yields without risk.
Because government bonds are a mechanism for lending money to the government, the default risk is extremely low, and in a phase where rate hikes are progressing, it becomes possible to aim for a fixed yield of 2%–3% or more per year. For those who ‘do not want to take on the risk of large price fluctuations like stocks but want to reliably increase their money,’ this is an extremely solid asset defense strategy.
The key is to ‘identify the timing when interest rate hikes reach their peak (ceiling) before purchasing.’ Since the Bank of Japan’s policy interest rate ceiling (terminal rate) is predicted to be around 2%, it is most effective to shift a portion of your portfolio to government bonds at the stage when interest rates approach the ceiling range.
5. [Danger] Will mortgage payments increase by 100,000 yen per month? Price adjustments looming over the real estate market
The most direct and severe blow to personal finances is the rise in mortgage interest rates. Currently, there is a massive amount of outstanding mortgage debt equivalent to about 40% of Japan’s GDP, and much of it is structured with variable interest rates.
Let’s look at a concrete calculation of how much the monthly repayment amount will increase if interest rates actually rise.
Mortgage Repayment Calculation (For a 100 million yen loan over 35 years)
Interest rate 1.0%: Monthly repayment approximately 280,000 yen
Interest rate 3.0%: Monthly repayment approximately 385,000 yen (an increase of 105,000 yen per month)
Interest rate 5.0%: Monthly repayment approximately 500,000 yen (an increase of 220,000 yen per month)
If monthly repayments increase by more than 100,000 yen, many households will be forced to significantly cut back on consumption, and in the worst case, there is even a risk of falling into default.
This increase in repayment burden also affects the entire real estate market. Since those who were previously able to buy a 100 million yen property will be forced to lower their budget to the 70 million yen class, this will lead to a deterioration in the performance of housing manufacturers and ultimately to downward pressure on overall real estate prices.
Since there is a certain time lag between interest rate hikes and adjustments in real estate prices, aiming for the bottom-price timing when interest rates have peaked and prices have fully fallen is extremely important for future asset formation.
Summary
The long-lasting ‘world without interest rates’ has come to an end, and we have entered an era of full-scale interest rate hikes.
Rising interest rates will bring the following ‘four major changes’ to our money.
Stagnant wage growth: Corporate interest burdens will increase, leading to suppressed labor costs and slower salary growth.
Selection in the stock market: While the overall market will be pressured by cooling capital investment, AI-related companies, exporters, and the financial sector will stand out.
Rise in interest rates and deposit yields: The value of utilizing government bonds and similar instruments, which can target annual yields of 2% to 3% without risk compared to ordinary deposits, will increase.
Rapid increase in mortgage repayments: Due to the rise in variable interest rates, the burden will increase by tens of thousands to over a hundred thousand yen per month, and real estate prices will head toward an adjustment phase.
You cannot protect your assets just by fearing change. Correctly understanding the structure and taking early measures—such as ‘reviewing your mortgage,’ ‘investing in high-dividend stocks or mega-trend stocks,’ and ‘solid management through government bonds’—is the only way to protect a prosperous life in the coming era.
1. For those who want to aim for large returns with small-cap stock investments
The period of rising interest rates is the very chance to grasp the ‘next mega-trend’
As mentioned in the text, in the coming ‘world with interest rates,’ not all stocks will rise uniformly. However, in other words, if you can find raw gems like the ‘next AI-related stock’ that have growth potential surpassing major companies, it is possible to multiply your assets many times over, transcending market waves.
The ‘how-to’ for finding next-generation, promising small-cap stocks to turn the interest rate hike period into a tailwind and aim for overwhelming returns is explained in detail in this article.
2. For those aiming steadily for 100 million yen in assets (Okuribito)
A roadmap to overcome the ‘pressure of rising interest rates’ and reach 100 million yen in assets
In an era where salaries are hard to raise and the burden of mortgage loans is increasing, the wall of 100 million yen in assets will only move further away if no measures are taken. However, if you make the wave of interest rates your ally and correctly restructure your portfolio, the path to 100 million yen will change into something certain and highly reproducible.
I have summarized the specific steps and asset allocation strategies to steadily build 100 million yen in assets without being swayed by the changes of the times. If you are serious about advancing your asset formation, please take a look.
3. For those interested in a dividend-based lifestyle (income gains)
Dividend strategies to create ‘another source of income’ that does not rely on a salary
As inflation and interest rates rise simultaneously in the future, the strongest weapon to protect our lives will be ‘dividends.’ In a phase of rising interest rates, ‘buying opportunities’ where stock prices are temporarily adjusted and dividend yields jump will visit periodically.
I am disclosing here how to select excellent high-dividend stocks to steadily increase monthly and annual cash income while suppressing the risk of price declines, and to obtain the ‘coveted dividend lifestyle.’
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