Is X-Day Near?” Must Read for Mortgage Loan Users! Megabanks and Fixed Type will be raised… What will happen to [Variable Rate]? | FRIDAY DIGITAL

Is X-Day Near?” Must Read for Mortgage Loan Users! Megabanks and Fixed Type will be raised… What will happen to [Variable Rate]?

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Since the Bank of Japan’s monetary policy meeting held in January, it has been widely believed that the “negative interest rate policy” will be lifted as early as March. As a result, long-term interest rates have risen, and fixed mortgage rates at megabanks have been raised, albeit slightly. So what will happen to [variable interest rates], which are used by more than 70% of mortgage borrowers? Experts explain.

10-year fixed rate” has already been raised.

On January 31, the Bank of Japan released the “main opinions” from its Monetary Policy Meeting. It is said that “a number of participants expressed a positive attitude toward a change in the Bank’s large-scale monetary easing policy,” and speculation of a change in monetary policy is suddenly gaining momentum.

Financial markets reacted to this, and long-term interest rates rose slightly. In response, Sumitomo Mitsui, Mizuho, and Resona each raised their 10-year fixed mortgage rates in February, as 10-year fixed mortgage rates are linked to long-term interest rates. The long-term interest rate here refers to the yield on 10-year JGBs with a remaining maturity of approximately 10 years.

On the other hand, variable interest rates, which are used by far the most, do not move at all, because they are determined by a different mechanism than 10-year fixed-rate or fixed-rate for the full term. First, let’s review the mechanism.

Why are interest rates on fixed-rate mortgages being raised while floating-rate mortgages remain unchanged?

Floating interest rates are linked to the “short-term prime rate.

Floating interest rates on mortgages are linked to the “short-term prime rate” (hereafter referred to as the “short-prime rate”). To be precise, it is the “base interest rate” that is linked. If the base interest rate rises, the “applicable interest rate,” which is the actual borrowing rate, will also rise.

Short-Pla is the most preferential lending rate for short-term loans of one year or less made by financial institutions to companies. In the case of loans to individuals, it is also the standard for automobile loans and education loans, in addition to housing loans. Therefore, if the Short-Term Loan Rate is raised, it is highly likely that in the following month, not only the [variable interest rate] for housing loans, but also for auto loans and education loans will be raised.

The Bank of Japan’s policy rate will affect the [short plat

So, under what circumstances would the Short-Pla go up? Short-term plat is affected by short-term interest rates, but in effect, it is linked to the Bank of Japan’s policy interest rate. This policy rate is the “unsecured overnight call rate. This is the interest rate on ultra-short-term loans maturing in one day, traded in the interbank market, in which only financial institutions participate. Although there are various abbreviations, we will continue the explanation below using “next-day interest rates.

The BOJ sets the guideline level of the next-day interest rate, which is currently -0.1%. The BOJ’s interest rate for the next day fluctuates around the -0.1% level on a daily basis, but the -0.1% guidance level itself remains unchanged unless the BOJ changes its monetary policy. The first step in the BOJ’s policy change is the “lifting of negative interest rates.

What is the basis for the “March-April lifting” of the negative interest rate policy?

As mentioned at the beginning of this article, there is a view emerging in the financial markets that the negative interest rate policy may be lifted as early as March. For example, the Nihon Keizai Shimbun reported, “BOJ’s January Meeting in Range of Lifting Negative Interest Rates, Eyeing March-April.

The BOJ introduced its “inflation targeting policy” in January 2001. The BOJ introduced its “inflation targeting policy” in January 2001, which aims to end deflation and stabilize prices, specifically targeting a 2% year-on-year increase in consumer prices. Although the 2% year-on-year rate of increase was achieved in the first half of 2010, the BOJ has continued to ease monetary policy on the grounds that it could not foresee a sustained rise in prices in a manner that would be accompanied by an increase in wages. This is the basis for the “March-April release theory,” which states that conditions will be met if the rate of wage increases is large in this year’s spring labor struggle.

Governor Ueda says that the current large-scale monetary easing measures will be maintained until there is a prospect of achieving the 2% price target… (PHOTO: AFRO)

Late this year, when prices settle down, it may be difficult to lift it.

However, there is a hidden background to this theory: if the March-April period is missed, the timing for lifting the measure will be lost. In fact, the year-on-year rate of increase in consumer prices has peaked. By analogy with the figures for the Tokyo metropolitan area, it is likely to remain at the 1% level in the second half of this year. Perhaps it will fall below the 1% level in ’25. If this is the case, the inflation target of 2% will be far away and there will be no basis for lifting negative interest rates.

The “March-April lifting” theory would suggest that the BOJ will lift negative interest rates to justify itself at a time when prices are at a high level and wage increases are the focus of attention in the spring labor offensive. However, what explanation will the BOJ give when the rate of price hikes declines in the second half of this year? The question remains unanswered to a great extent.

Real wages have been negative for 21 consecutive months

A sober look at the current economic situation suggests that the BOJ is not ready to lift its negative interest rate policy. After all, real wages for company employees, taking into account price trends, have been negative for 21 consecutive months until December 2011, the most recent data available. Although wages have been rising, they have not been able to cover the rise in prices.

As mentioned above, price hikes are expected to exceed their peak, but wage hikes will not be able to keep pace, and negative growth is likely to continue this year. It is true that the rate of wage increases in the Spring Struggle is likely to be large, but that is only for large companies. Large wage increases for small and medium-sized firms are still unlikely.

This is the second year of negative real wages. The actual situation for households must be even more difficult than the figures indicate. Under these circumstances, it is not appropriate to lift negative interest rates, which will further increase the burden on the public and lead to an increase in short-form interest rates.

From the Lifting of Negative Interest Rates to a “Zero Interest Rate Policy

To return to the topic at hand, first of all, the lifting of negative interest rates in March is not likely to be anywhere near 100%. Although the results of the Spring Struggle have come in, it is still too early to foresee wage hikes among small and medium-sized enterprises. With the end of the fiscal year also approaching, it is unlikely that the BOJ will take the initiative to do anything that would amplify the risk of price volatility in the financial markets.

In terms of mortgages, the [floating interest rate] is reviewed every six months, on April 1 and October 1, so if it is lifted in March and the short pledge goes up, it could have an immediate impact. Floating-rate loans have a “five-year rule,” meaning that the repayment amount is reviewed once every five years, so although the repayment amount will not increase from April, the repayment plan will have to be revised. There are also some online banks that do not adopt the 5-year rule.

The April lifting could be around 20%. As the end-of-year factor disappears and wage trends become more visible, there may be policy changes that do not lead to an increase in the short term pledge. To begin with, the negative interest rate policy is to set the interest rate on a portion of current accounts deposited by financial institutions with the BOJ to negative. As a corollary, the BOJ sets the guidance level of the next-day interest rate at -0.1%. If the BOJ were to lift negative interest rates, the next-day interest rate would be set at 0%. This would be the return of the “zero interest rate policy.

In this case, there is a possibility that the short pledge will not be raised. In the past, when negative interest rates were introduced in 2004, banks did not lower the TPL. It would not be surprising if something similar happens this time. However, in principle, banks are allowed to set their own interest rates, so there is no guarantee that the BOJ’s intentions will be followed.

No change in [variable interest rates] for about two years from now: ……

Finally, a personal prediction. The lifting of negative interest rates will probably take place at the Monetary Policy Meeting in October at the earliest. Depending on the progress of the U.S. interest rate cut, it may be delayed to ’25. The important point is that there is a high probability that even if the negative interest rate is lifted, the Bank will only return to its zero-interest-rate policy, which will not lead to a change in the Short Plans, and therefore the [floating interest rate] will not be raised. The current level will probably continue for about two years.

If you currently have a floating-rate mortgage and do not have much money to spare, it would be wise to make steady prepayments and save for the coming increase in floating interest rates, without taking advantage of the NISA.

  • Interview and text Kenji Matsuoka

    After working as a money writer, financial planner, and market analyst for a securities company, Kenji Matsuoka became independent in 1996. He writes articles on finance and asset management mainly for business and economic magazines. Author of "A Textbook for the First Year of Robo-Advisor Investing" and "Understanding with Rich Illustrations! The Book of Absolute Benefit from Cashless Payments".

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