BOJ Keeps Policy Rate Around 0.75%, Putting Mortgage Costs in Focus

The policy rate remains around 0.75%

At its July 30-31 monetary policy meeting, the Bank of Japan maintained its guideline for the uncollateralized overnight call rate at around 0.75%. The BOJ policy rate is not the same as a mortgage rate: banks price home loans according to their own funding costs, competition, borrower characteristics and whether the loan is fixed or floating. Nevertheless, the policy rate and expectations for its future path can influence short-term funding conditions and therefore the cost of financing property purchases.

The BOJ continues to leave room for further normalization

The BOJ's July Outlook Report states that, if its economic and price outlook is realized, it expects to continue adjusting the degree of monetary accommodation by raising the policy rate. Opinions from the July meeting, published on August 10, also show that policymakers remain focused on economic, inflation and financial developments. For property investors, this means the relevant question is not simply whether the current rate is 0.75%, but how cash flow would perform if borrowing costs were higher during a multi-year holding period.

Financing conditions vary more widely for foreign and non-resident buyers

Japanese mortgage availability can differ substantially between domestic residents and non-resident borrowers. Visa status, Japanese income, employment, down payment, purchase purpose and the location and type of the property may all affect which lenders are available and at what terms. For investment property, a higher borrowing rate narrows the spread between rental yield and financing cost. Investors should therefore evaluate operating expenses, taxes, vacancy assumptions and debt service rather than relying only on headline gross yield.