Japan carmakers put squeeze on households with higher loan rates

Japan Times

23-07-2025

Japan's automakers have begun hiking loan rates as a historic central bank pivot to unwind three decades of ultraloose monetary policy trickles down to consumers, raising household credit costs.
More than a year after the Bank of Japan's first interest rate increase in 17 years, the volatile march higher in superlong bonds is raising the cost of servicing loans, including car repayments — making the auto sector one of the first key pain points as households look to tighten their belts.
Japan's biggest carmakers are already raising rates. Honda's annual interest rate has been at 5.5% since April, according to the company's website, a bump from the 4.9% it offered in June 2024. Mazda said it currently offers a 3.9% annual interest rate for residual credit loans, an increase from last year's 3.4%, through its joint venture with Toyota Finance.
Meanwhile, Subaru said its 3.9% residual loan rate is unchanged from last year. Loans, credit and leases accounted for about 42% of all new vehicle purchases in the country in fiscal 2023, according to the Japan Automobile Manufacturers Association.
"The nation is entering an era of normalized interest rates for the first time since these financing tools became common use,' said Hikaru Todoroki, principle auto consultant for KPMG. While measures like extending repayment periods may help contend with rising rates, there's a risk the auto industry turns to discounting — creating price volatility that would ultimately hurt both companies and consumers, he said.
Japan's long battle with deflation was synonymous with incredibly low interest rates that, alongside repayment terms that focus on the residual value of a car, made luxury models relatively attainable. It's not unusual for a middle class family to drive a Toyota Alphard, a large van that sells for as much as ¥10 million (about $67,000).
But growing pressure on household expenditure may reshape what consumers buy. The ripple effect of higher loan repayments may be a drop in used-car prices and a surge in demand for more budget-friendly new-car options, according to Bloomberg Intelligence senior auto analyst Tatsuo Yoshida.
Tosai Group, which operates a network of new and used car dealerships across Japan's Kanto region, has offered loans with a 1.9% interest rate for several years. Billboards touting low rates line the street in Misato, Saitama Prefecture, where the company's flagship store is located.
But it's unlikely to be able to offer those deals over the medium to long term, which will weigh on demand, according to Yoshihiro Baba, a managing director at the company. "We might have to take those down,' he said, looking at the advertisements.
A drop in demand would deal a major blow to an industry already hit hard by U.S. President Donald Trump's tariffs on cars and parts. Japan's major carmakers have warned the duties will hammer their bottom lines, but the impact also risks derailing Japan's economic recovery given the importance of the sector.
The BOJ, meanwhile, is due to meet on July 31. While policymakers are expected to keep the benchmark rate unchanged, persistently high inflation is likely to keep the central bank on the path toward further interest rate increases later this year.
Low interest car loans have allowed banks and automobile manufacturers, along with the financiers and dealerships they work with, to lend money to more customers, said Yuuki Fukumoto, senior financial researcher at NLI Research Institute. "Interest rates are surely going to keep rising.'