In June 2026, the Bank of Japan raised the benchmark interest rate to 1%. Higher benchmark rates lead banks to boost their own rates, making mortgages more expensive. Compared to Japan’s long history of sub-1% rates, for many this new hike has felt like a turning point, but it remains to be seen exactly how large the aftershocks will be.
To get an idea of what the future holds, let’s turn to the past. Indicators of liquidity, such as time to sell or volume of price reductions, show that Tokyo’s 23-ward condo market was still very active through early 2025. Most properties were sold without the need for price reductions.
In mid-2024, when the benchmark rate rose to 0.25%, there was not much of a noticeable drop in market liquidity. Essentially, demand was strong enough to absorb any hits caused by rising interest rates.
Around the end of 2025, though, when the benchmark rate hit 0.75%, things started to change. While time to sell remained relatively stable, the number of price reductions increased. And if you’re following our newsletter, you’ve already seen how often price reductions come up these days. Though as a short aside, most properties we list are renovated resale units, which are even more likely to see price drops compared to owner-sold properties. All in all, sellers now need to be more willing to adjust prices to where buyers are actually at, but liquidity as a whole hasn’t shifted dramatically.
Some of Tokyo’s central wards, though, specifically Chiyoda, Chuo, Minato, Shinjuku, and Shibuya, saw market shifts sooner. Rather than waiting until the 0.75% hike, these markets started reacting as soon as rates hit 0.25%. Prices in these areas rose sharply from 2023 to 2025, far faster than the purchasing power of potential buyers did. Hence a faster weakening of liquidity.
The Tokyo Bay area has also seen a major shift. While it mostly staved off liquidity drops until the benchmark rate reached 0.75%, price drops began around then. Prior to that, the Bay area was developing rapidly and being quite hyped up by developers, investors, and regular buyers alike. But with prices being so high, even a small interest rate jump can have bigger-than-expected effects on monthly payments, which can easily cause some degree of market cooling.
It’s important to look at all of this with a calm mind, though. Liquidity slowing down does not mean the market is in freefall. Overall prices on average are still rising, despite liquidity as a whole dropping. If anything, this is hopefully a good sign for potential buyers. You shouldn’t expect that prices are going to keep going down and down until everything is suddenly super cheap, but prices may finally become a bit more even between supply and demand.
Trying to time the market here isn’t the correct play, as this is one of the most volatile periods ever in Japanese real estate. That being said, it is more important than ever to know if a property is valued properly, or if it is just being overpriced due to hype. If you’d like help separating the wheat from the chaff, we at Dovetail would love to hear from you.