When 'Interest Rates Rise,' What Happens to Stock Prices and Home Loans?
Hello everyone! It’s Ririna!
This might be sudden, but don’t you find that you’ve been seeing news about
‘interest rates rising’ quite often lately?
However, even though we might have a vague image that
‘rising interest rates = scary, bad’, I think it’s surprisingly rare for people to fully understand what kind of actual impact or changes this brings😌
‘If interest rates rise, what will happen to my new NISA?’
‘Why do stock prices fall when interest rates rise?’
‘I don’t know how I should invest now that interest rates are rising…’
In this article,
for those of you who are feeling this uncertainty
what kind of changes will occur close to us as housewives
who are investing during a period of rising interest rates?
I will focus on how it specifically affects ‘stock prices’🙂↕️
【Click here for Ririna’s profile】
👇 I am Ririna, a housewife who achieved 30 million yen in assets in 5 years of marriage😌
※This article is intended to explain my own investment philosophy in an easy-to-understand way. It does not recommend any specific financial products. Investing involves risks, and future investment results are not guaranteed. Please make decisions within a reasonable range according to your own goals and household financial situation.
📝 Conclusion: Summary of what happens during a period of rising interest rates
First, let’s start with the conclusion!
During a period of rising interest rates,
it is generally considered that things often follow this flow.
✅ Corporate interest burdens increase, and profits are easily squeezed
✅ Money tends to move from ‘stocks’ with price fluctuations to ‘deposits and bonds’ with lower price fluctuation risk
✅ As a result, it tends to be a headwind for stock prices (especially growth stocks like tech stocks)
✅ On the other hand, it tends to be a tailwind for financial stocks like banks and insurance
✅ Variable-rate home loans move in the direction of increasing repayment amounts
Looking at it as a whole, these are points that make you worry about the disadvantages.
However, I don’t think there is any need to
hurriedly stop investing just because of that🙂↕️
The important thing is to know the ‘direction of interest rates’ and
prepare your household finances and assets.
🇯🇵 What is happening with Japanese interest rates right now?
First, let me organize the current situation.
・March 2024: Bank of Japan ends negative interest rates
→Gradual interest rate hikes thereafter
・June 2026: Policy interest rate to around 1.0%
・September 2026: Policy interest rate to around 1.25%. The highest level in about 31 years since 1995
The pace of interest rate hikes has been accelerating over the past few years🙂↕️
In the first place, according to textbook knowledge, interest rate hikes are
meant to prevent prices from rising too much.
By raising interest rates and slightly tightening the amount of money circulating in society,
they are trying to cool down the heat of inflation.
📉 Why do stock prices tend to fall when interest rates rise?
This is the point I want those who are investing to understand the most.
“Why do stocks fall when interest rates are raised?”
There are three main reasons for this.
1. Increased interest payments for companies
Companies operate by borrowing money from banks.
When interest rates rise, interest payments increase, which puts pressure on profits.
2. It becomes harder to borrow new money
Since the cost of borrowing increases,
it becomes easier to put the brakes on capital investment and business expansion.
For companies without excess funds, they may even move toward downsizing their operations.
3. Money moves from stocks to deposits and bonds
I want you to remember the cause and effect together for this one, so
I will explain it in detail in the next section!
💡 Why does money move from stocks to bonds and deposits?
Next, let’s talk about the “movement of money” in point 3.
In an era of low interest rates,
interest on deposits was almost zero,
and bond yields were also minimal.
👇
Therefore,
“if you want to grow your money even a little, choose stocks,” so money tended to gather in stocks.
But when interest rates rise, this premise changes ♻️
For example, suppose there are these two options:
A: Stocks that fluctuate in value and could result in a loss of principal. Expected dividend yield is 3%.
B: Bonds where you lend money to the government. If held until maturity, the yield is 2.5%.
In an era where interest rates are almost zero, I think many people would have chosen A without hesitation.
But what if you could get 2.5% with B?
Don’t you think more people would think, “I don’t necessarily have to go out of my way to buy stocks that fluctuate in value”?
*The numbers for A and B are examples to explain the concept.
In fact, when interest rates rose in the U.S. in 2022,
there was a movement to “move money from stocks to safer savings or bonds with higher yields.”
As money leaves the stock market in this way, stock prices tend to fall.
⚠️ One thing I want you to be careful about here is that
“money moving toward bonds does not mean the bonds you hold will rise in value.”
When interest rates rise,
“the yield on newly issued bonds” becomes higher.
Because of that,
“existing bonds with lower yields” become less attractive,
and their prices fall.
In short, those who benefit in a rising interest rate environment are ‘those who are about to buy new.’
For those who already hold bonds, this is a timing when valuation losses are likely to occur😂
I discuss this mechanism of bonds and the story of the bond ETFs I am currently holding at a loss in detail in the article
‘Is bond investment a good idea now that interest rates are at a 30-year high? An explanation from someone currently holding unrealized losses.’
👇 Click here for the bond discussion
♻️ Stock movements vary significantly depending on the industry
I have talked about it being a ‘headwind for stock prices’ so far, but
just because we group them as ‘stocks’ does not mean they all fall in the same way.
✅ Likely to face headwinds: Growth stocks like high-tech stocks, real estate, REITs
✅ Likely to get a tailwind: Financial stocks like banks and insurance (interest margins tend to widen due to lending and asset management)
The economy has a flow of ‘recovery phase → boom phase → recession phase → depression phase,’ and
industries that tend to rise and
industries that tend to fall change from time to time.
In the recovery phase, where interest rates are lowered and money is distributed, high-tech and real estate are strong.
Conversely, in a phase where interest rates are raised to cool down the economy,
such stocks are likely to fall, and
if the economy worsens further,
defensive stocks that handle ‘things that are necessary at all times,’ such as telecommunications, healthcare, and daily necessities, are said to become stronger.
To be able to withstand any phase that comes,
I place great importance on ‘diversifying by industry’☺️
🏠 Mortgages are also heading in an ‘upward’ direction
The main topic is stock prices, but
I will also touch on mortgages, which are directly linked to household finances!
Those affected by mortgage interest rates are mainly
・Those who are about to take out a mortgage
・Those who have already selected a ‘variable rate’ or ‘fixed period followed by variable’ interest rate type
is that right.
According to a survey by the Japan Housing Finance Agency (January 2026), 75% of people who newly borrowed a mortgage
‘variable rate’ have chosen.
Including fixed-period selection types,
in fact, about 90% of new borrowers fall into this category
Variable interest rates are easily affected by the Bank of Japan’s policy interest rate, and
at many banks, interest rates are reviewed twice a year in April and October.
In other words, if interest rate hikes continue, repayment amounts will move in an upward direction.
For example, in the case of a 30 million yen loan over 35 years,
if the interest rate rises from 0.5% to 1.5%, the monthly repayment is calculated to increase by about 14,000 yen.
(This is an estimate assuming equal principal and interest repayment and the same interest rate for the entire period / Actual amounts vary depending on conditions, so please check with your financial institution, etc.)
If you have a variable rate loan,
it might be reassuring to check the interest rate and repayment amount of your home loan once.
And for those who are investing,
it is also important to keep life defense funds so that you will not be in trouble even if the repayment amount increases.
There is no ‘correct answer’ for mortgage interest rate types. As a major premise, no one knows the future, so please consult with a professional such as an FP and choose an interest rate type that suits you.
My personal experience with a rising interest rate market
Interest rates are starting to rise in Japan now.
Actually, the same thing happened a bit earlier in the United States in 2022.🙂↕️
And I have already felt the changes from the interest rate hikes in Japan as well.
I would like to look back at
what happened to my assets during the actual interest rate hike phase.
1. My stock holdings dropped significantly due to US interest rate hikes
In 2022, the US raised interest rates all at once to curb inflation.
Tech stocks like Google, Amazon, and Tesla all fell across the board.
Indices like the S&P 500 also dropped significantly.
I have been investing since 2018 and experienced the COVID shock in 2020, so I took it in stride, thinking, ‘Ah, it’s dropping again.’
When stock prices fall,
it is also a ‘timing to buy cheap’ for me.
When the market recovered the following year, I felt once again that I was glad I endured and kept going.
2. High-dividend stocks as a ‘cushion’
Even while tech stocks were falling due to interest rate hikes,
high-dividend stocks and stocks with consecutive dividend increases moved relatively firmly.🌱
I invest in high-dividend stocks within the growth investment quota.
The biggest reason is the goal of ‘continuing to receive dividends tax-free,’ but
in terms of choosing consecutive dividend-increasing, large-cap stocks as the main focus, there is stability, and
I feel that high-dividend stocks act as a cushion against the tech stocks that fell due to interest rate hikes.
In terms of US stocks, companies like Coca-Cola and P&G are also stocks I hold as a cushion for when tech stocks fall, in addition to the dividend purpose.
3. Gradually adding bank stocks during the interest rate hike phase
During the interest rate hike phase, I have also been conscious of bank stocks.
At times when bank stocks were down a little,
I was buying them little by little in my new NISA growth investment quota.
After that, there was an announcement of an interest rate hike by the Bank of Japan, and bank stocks gradually rose.
I am also seeing unrealized gains on the portion I held for dividend purposes.😌
Another checkpoint
Another thing I check is the ‘MOVE Index’.
This is an index that shows the intensity of future price movements of US Treasury bonds, or in other words, the ‘fear index of the bond market’.
Bond movements can also be used to read interest rate movements, right?
Interest rates affect
every market, including stocks, foreign exchange, and mortgage rates.
Therefore, to see if interest rates are becoming unstable,
I double-check it along with the VIX index, which is called the fear index for stocks.☺️
Summary
✅ When interest rates rise, companies’ interest burdens increase and it becomes harder to borrow new money, so it tends to be a headwind for stock prices
✅When the yields on deposits and new bonds rise, money tends to move from stocks to deposits and bonds. However, the prices of bonds already held will fall
✅ The impact varies by industry. Growth stocks and real estate tend to face headwinds, while banks and insurance tend to benefit, so industry diversification is important
✅ Variable-rate mortgages will tend to rise. Rather than quitting investing in a panic, keep emergency funds and prepare
The impact of interest rates
is not just one factor, but a combination of multiple things that appear as a result, so
I cannot conclude that ‘because of X, Y will happen!’
That is precisely why
knowing what factors exist and
what the pros and cons are
is very important for deepening your learning.
That said, it’s okay if you don’t understand everything right now🙂↕️
First, start by remembering this general direction:
When interest rates rise, stock prices tend to fall, and money tends to move toward savings and bonds.
Just start by keeping this general trend in mind😉
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