Key Factors That Distinguish Wealth from Poverty Amid Rising Interest Rates

Older individuals with financial assets are affluent, while the working-age population faces challenges due to loan repayments and increasing social security costs.

“As of now, it is expected that the policy interest rate will rise to 1% by the end of March 2026. Although it’s unclear how long it will take to reach 2%, market participants believe it will move in that direction. With the 2% rate becoming more realistic, those who have taken out a 30-year mortgage should keep this in mind.

Those who have taken out loans with online banks, in particular, may face increased repayment difficulties as interest rates rise, given that their initial rates were low. It might be wise to be prepared for this.”

For those in the working-age group with mortgages, it is advisable to take precautionary measures to avoid future interest rate risks. 

“It is important to save any money returned from the housing loan tax deduction and any monthly surplus rather than using it. This will help you prepare for future early repayments and potential increases in variable interest rates.

I recommend individual government bonds. These bonds are reviewed every three months, and the interest rate increases with the rise in rates.

Investments like NISA should be avoided. While they are often presented as guaranteed to be profitable if held for about five years, there is no such guarantee. Gradually increasing savings with individual government bonds and using them for early repayments is a wiser strategy.”

The era when homeowners with variable-rate mortgages could benefit from low interest rates is coming to an end.

In times of rising interest rates, deposit rates also increase, benefiting older individuals who have completed their loan repayments and hold financial assets.

Conversely, the working-age population faces increasing economic pressure due to rising mortgage payments and growing social security burdens.

According to the Ministry of Finance, the national burden rate (tax burden rate + social security burden rate) for fiscal year 2024 is estimated to be 45.1%. This is up from 35.4% in 1999, when the zero interest rate policy was first implemented, and 42.7% in 2016, when the negative interest rate policy began. It is clear that the burden is increasing.

Currently, social media is abuzz with calls to reduce social insurance premiums for the working-age population and to implement policies to lower these costs quickly.

Last year’s national tax revenue was over 72 trillion yen, setting a record for the fourth consecutive year. Despite this, social security costs continue to rise.

“If tax revenue is increasing, a typical policy would be to lower consumption tax or social security costs. However, the Kishida administration has merely offered a fixed tax reduction of 40,000 yen.”

With rising mortgage rates making the dream of homeownership more distant and heavy social security burdens increasing living costs despite wage increases, it is unlikely that Japan will see improvements in marriage rates or a resolution to its declining birthrate. 

Kenji Matsuoka is a money writer and financial planner. After working as a market analyst at a securities firm, he became independent in 1996. He writes articles on finance and asset management for business and economic magazines. His books include “The Textbook for the First Year of Robo-Advisor Investment” and “Understanding Cashless Payments with Abundant Illustrations: The Book That Will Definitely Save You Money.”