Higher Interest Rates Divide Japan's Young and Old

Japan's move to raise interest rates by 0.25 percentage points, now standing at 1.25%, is causing significant disparities among households, with younger individuals facing higher mortgage repayments while older savers stand to gain from increased deposit interest. Despite many households grappling with rising prices and a lack of improvement in living standards, the central bank's primary responsibility is controlling inflation.

The decision to raise rates also reflects lessons learned from Japan's asset bubble in the late 1980s and the subsequent economic stagnation. Japan's economic journey began with the Plaza Accord in 1985, leading to a sharp appreciation of the yen against the dollar, which negatively impacted the country's export sector. To stimulate growth, the BOJ lowered interest rates to 2.5%, leading to an expansion that fueled soaring stock and property prices.

However, the BOJ eventually raised rates to curb the overheating economy, contributing to the asset bubble's collapse. The central bank is now aiming to normalize interest rates, with the potential for further increases to 2% or even 2.5%. Younger households, particularly those with variable-rate mortgages, will face higher monthly payments, while older generations may benefit from higher interest rates on their savings.