BOJ’s minus interest rate may result in lower home loan rates

Following the Bank of Japan’s surprise announcement to set interest rates at minus 0.1%, Japan’s retail banks have started to make moves to lower home loan interest rates.

The Bank of Tokyo-Mitsubishi UFJ (MUFJ), Sumitomo Mitsui Banking Corporation (SMBC) and Resona Bank plan to reduce the prime rate on their 10-year fixed-rate home loans by 0.05 points to 1.05%.

Sumitomo Mitsui Trust Bank plan to reduce their rate by 0.05 points to 0.70%, while Mizuho Bank will leave their rate at 1.05%.

Home loan rates tend to follow movements of the 10-year long-term government bond rate which fell to a record low of 0.05% after the BOJ announcement on Friday. If it remains at this low level, it is likely that banks may reduce home loan interest rates further in March.

Term deposit accounts may also be affected with several banks lowering interest rates paid to customers. From February 1, the Bank of Yokohama and the Hachijuni Bank lowered their interest rate on term deposits of less than 1 year by 0.005 points to 0.020%. This puts the interest rate at the same level as ordinary, non-term deposit bank accounts. Resona Bank reduced their 2 ~ 5 year term deposit interest rates by 0.005 ~ 0.025 points to 0.025%.

Sources:
The Sankei Shimbun, January 29, 2016.
NHK, January 29, 2016.
The Asahi Shimbun, February 1, 2016.