BOJ Rate Hike Could Mean Both Good and Bad for Households

Tokyo, Dec. 20 (Jiji Press)–The Bank of Japan’s decision on Friday to raise its policy interest rate further is expected to affect households and businesses in both positive and negative ways. Following the latest BOJ decision, MUFG Bank and Mizuho Bank, two of the country’s three megabanks, announced that they will increase their short-term prime lending rates to 2.125 pct from 1.875 pct. The short-term prime rates are used to adjust floating mortgage rates every six months. About 80 pct of housing loan users in Japan are said to choose the floating-rate type. While most loan contracts include measures to keep monthly repayment amounts unchanged for five years, higher interest rates mean larger interest payments and smaller principal repayments. Therefore, overall repayments will increase. However, this negative impact on households may be offset if the BOJ rate hike curbs inflation and wages continue to increase, as the BOJ expects. Higher lending rates could also make it more difficult for small businesses, which are already struggling with rising costs and labor shortages, to repay or obtain loans. “There is a growing possibility that more companies will reach their funding limit,” said an official at Tokyo Shoko Research Ltd. On the other hand, households are expected to benefit from higher bank deposit rates. MUFG Bank and Sumitomo Mitsui Banking Corp., the other Japanese megabank, said Friday that they will raise their annual interest rates on ordinary deposits to 0.3 pct, the highest level in roughly 33 years, from the current 0.2 pct. Interest rates on time deposits are also expected to rise, as the benchmark 10-year government bond yield has climbed above 2 pct in anticipation of further rate hikes by the BOJ. Banks are intensifying competition for deposits, as improved profit margins on lending operations increase the importance of deposits as a revenue source. Some have drastically raised time deposit rates to attract customers. Life insurance companies are also raising the guaranteed yields on whole-life insurance policies. END [Copyright The Jiji Press, Ltd.]