“When interest rates rise, stock prices fall.” “When interest rates rise, the burden of home loans increases.”When watching the news, you often hear the word “interest rate.”In our previous article, “Do stock prices rise when the yen weakens?”, we explained that changes in exchange rates affect corporate sales and costs, which in turn can impact stock prices.In fact, another important factor when looking at exchange rates and stock prices is interest rates.However, if someone asks, “What exactly is an interest rate?”, it might be surprisingly difficult to explain.In this article, we will take an easy-to-understand look at the basics of interest rates and how rising interest rates affect our daily lives, companies, and stock prices.1. What exactly is an “interest rate”?Simply put, an interest rate is the percentage of interest charged when borrowing or lending money.For example, suppose you borrow 1 million yen at an annual interest rate of 1% for one year.Simply put, the interest for one year is 10,000 yen.On the other hand, if you deposit 1 million yen in a savings account with a 1% annual interest rate, you would receive 10,000 yen in interest over one year, excluding taxes and other factors.In other words, it is easy to think of interest rates as “the cost of borrowing money” for borrowers and “the interest earned by depositing money” for depositors.2. How do rising interest rates affect our daily lives?One thing that is easily related to our daily lives when interest rates rise is home loans.Especially with variable-rate home loans, if the applicable interest rate rises due to market interest rate trends, the interest burden may increase.However, just because interest rates rise does not mean that the repayment amount for all home loans will increase immediately.The impact varies depending on whether it is a fixed or variable rate, and the terms of the contract.On the other hand, rising interest rates have another side.Deposit interest rates may also rise.For those who have felt that they received almost no interest on their savings until now, there is a possibility that the interest they receive will increase.In other words, a rise in interest rates does not necessarily mean it is bad for everyone.3. Companies also have a “cost of borrowing money”It is not just individuals who borrow money.Companies also sometimes borrow funds when building factories, introducing new equipment, or expanding their businesses.If interest rates rise, the cost for companies to raise funds may also increase.As a result, companies may become cautious about investing, wondering, “Should we really build a new factory now?”or “Will this capital investment be profitable?”In general, rising interest rates can increase the cost of borrowing for companies and individuals, which can act to suppress economic activity.However, the extent to which they are actually affected depends on the company’s financial situation, the size of their debt, and other factors.4. So, do stock prices fall when interest rates rise?When investing, you may hear that “when interest rates rise, stock prices fall.”If rising interest rates increase a company’s borrowing costs or suppress capital investment, it could have a negative impact on corporate profits.Also, if the yields obtainable from deposits or bonds increase, it affects the decisions investors make about where to place their money.Therefore, rising interest rates can be a factor that pushes stock prices down.However, it is not the case that “if interest rates rise, stock prices will definitely fall.”This is because stock prices move due to various factors, such as corporate performance, the economy, exchange rates, overseas markets, and investor expectations.Just like the previous point that “a weaker yen does not mean higher stock prices,” it is important not to assume the direction of stock prices based solely on interest rates.Looking at interest rates helps connect economic newsWhen I first started investing, I only looked at stock prices.But as I learned more about investing, I gradually came to understand that stock prices, exchange rates, and interest rates do not move independently of each other.When you hear in the news that “interest rates have risen,” instead of just thinking, “Will stock prices go up or down?”, try thinking about “How does it affect borrowers?””How does it affect companies?””How does it affect savers?”Even just knowing that will change how you view economic news.Rising interest rates have both positive and negative sides.In this article, I have explained the basic concepts of interest rates.
Interest rates are the percentage of interest charged when borrowing or lending money.
When interest rates rise, the burden of things like home loans may increase.
On the other hand, the interest you receive on deposits may also increase.
It also affects corporate financing and stock prices.
For now, it is enough to understand that interest rates rising does not mean it is simply ‘good’ or ‘bad,’ but that the impact differs depending on your position. as a starting point.Once you learn about interest rates, the next thing you might be curious about is “bonds.”In the news, you often hear the seemingly strange statement that “interest rates rose, so bond prices fell.”What exactly are bonds?Why are they related to interest rates?Next time, I will explain “What are bonds? How are they different from stocks?” in a simple way for beginners.
