ANN, The Yomiuri Shimbun

The Bank of Japan’s decision to raise a key interest rate is expected to have both positive and negative impacts on households and businesses. While interest earned on bank deposits will increase, burdens from borrowing, such as housing loans, will rise. Whereas the elderly are expected to benefit greatly from the interest rate hike, younger people are likely to be adversely affected.

In response to the central bank’s decision, three major banks -- MUFG Bank Ltd, Sumitomo Mitsui Banking Corp and Mizuho Bank Ltd -- announced Tuesday that they would raise interest rates on savings accounts by 0.1 percentage points to 0.4 percent, effective August 3. The rate stood at 0.001 percent in March 2024, when the Bank of Japan ended its negative interest rate policy, meaning that the new interest rate represents a 400-fold increase.

For MUFG and Sumitomo Mitsui, this will mark the highest level in 34 years, or since August 1992, at a time when the two banks had yet to be formed through mergers of their various predecessors. As for Mizuho, the new interest rate will be the highest level since the bank’s founding in 2002.

According to estimates by the Mizuho Research Institute, the overall household economy will see a net gain of ¥1 trillion per year after balancing the positive and negative effects of the interest rate hike. This will be primarily due to an increase in interest income, which translates into an average annual gain of ¥20,000 per household.

However, the degree of the benefits will vary for each household depending on the size of their deposits and borrowings. Generally speaking, older people with larger financial assets will benefit more from increased interest income, while younger households with large outstanding housing loans will tend to be more negatively impacted.