japanese loan rates skyrocket to levels unseen in 13 years

2025-05-26 general

tokyo, Monday, 26 May 2025.
borrowing in japan is becoming more expensive. average contracted interest rates on new loans have hit 1.262% in march 2025. this is the highest since october 2011. short-term new loan rates exceeded 1% for the first time in a decade, reaching 1.054% in march. major city banks have already adjusted, increasing rates from 0.664% in february to 1.013% in march. the bank of japan’s recent interest rate hikes are largely to blame for this shift.

Bank profitability soars

The increase in loan interest rates is significantly impacting the profitability of Japanese banks [1]. For the fiscal year concluding in March 2025, the combined net profit of 73 listed regional banks and groups saw a substantial 29% year-on-year increase, reaching 1.2519 trillion yen [1]. This surge in profitability is largely attributed to a 10% rise in interest income, which totaled 3.9557 trillion yen [1]. Investors should monitor bank stocks, as these figures suggest a positive outlook for the financial sector. The rise in profitability could lead to increased dividends or reinvestments, further boosting investor confidence [GPT].

BOJ policy shift

The Bank of Japan’s (BOJ) policy shift is a key driver behind these rising rates [1]. The BOJ ended its negative interest rate policy in March 2025 [1]. This shift is influencing lending rates across the board [1]. In January, the BOJ had already raised its policy interest rate from 0.25% to 0.5% [1]. These actions reflect the BOJ’s broader strategy to manage inflation and stabilize the economy [5]. Investors should closely watch future BOJ announcements, as further policy adjustments could lead to additional market volatility [alert! ‘future policy decisions are inherently uncertain’].

Impact on bond yields

The rise in loan interest rates is occurring alongside fluctuations in the bond market [2]. On monday afternoon, the yield on the new 10-year government bond, a key indicator of long-term interest rates, fell by 0.010% from the previous weekend to 1.515% [2]. This decrease in long-term interest rates occurred as the Ministry of Finance’s liquidity-supplying auction indicated tightening bond market supply and demand [2]. The bid-to-cover ratio in the auction for bonds with a remaining maturity of over 5 years and up to 15.5 years was 3.06 times, compared to 2.3 times in the previous April auction [2]. Investors should monitor these movements, as they reflect broader market sentiment and potential shifts in investment strategies [GPT].

Deposit rate competition intensifies

The increase in lending rates is also driving competition among banks to attract deposits [6][7]. Internet banks and regional banks are launching campaigns to offer more attractive deposit interest rates [7]. This is because the rising lending rates, particularly for products like housing loans, create a need for banks to secure more capital to fund these loans [7]. For example, au Jibun Bank is offering a five-year fixed deposit to individuals aged 55 and over from April 11 to the end of May [6]. This targets older individuals with substantial savings, including retirement funds [6]. This competition could compress bank margins even as interest income rises [GPT].

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interest rates bank loans