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How Do the Yen Exchange Rate and BOJ Interest Rates Affect Foreign Buyers' Home-Purchasing Sentiment in Japan?

The two factors currently exerting the strongest influence on the sentiment of foreign homebuyers in Japan are the yen exchange rate and the policy interest rate set by the Bank of Japan (BOJ). These two factors are pulling in opposite directions, making market sentiment far more complex than the common assumption that “a weak yen means foreigners buy more, a strong yen means they buy less.”

In this article, ESTATE PLUS will analyze in detail the mechanism behind each factor's impact, based on official data from MLIT and major Japanese financial institutions, so you can have a clearer picture when considering buying a home or investing in real estate in Japan during the current period.

1. The Context: Where Is the Yen, and Where Are Interest Rates?

As of mid-2026, two important policy developments are unfolding in parallel:

1.1. Interest rates hit a 31-year high

On June 16, 2026, the BOJ decided to raise its policy rate from 0.75% to around 1.0% — the highest level in 31 years (since 1995). This marks the 5th rate hike since the BOJ exited its negative interest rate policy in March 2024.

Many banks are expected to raise their floating-rate home loan base rate by about 0.25% per year in October 2026, and some financial institutions forecast the policy rate could reach 1.0~1.5% during 2026.

1.2. The yen is fluctuating sharply but remains in historically weak territory

The USD/JPY foreign exchange market fluctuated quite sharply in the first half of 2026, at one point surpassing 159 yen/USD early in the year before adjusting back to the 152-157 yen/USD range.

Year-end 2026 forecasts from major Japanese financial institutions are fairly dispersed:

•        Nomura Securities: forecasts 152.5 yen/USD (revised upward from 147.5 yen due to Middle East geopolitical tensions)

•        SMBC Nikko Asset Management: forecasts 150 yen/USD

•        Daiwa Asset Management: forecasts the yen could strengthen to as much as 146 yen/USD by year-end

Overall, analysts generally agree that the yen remains in historically weak territory compared to the pre-2022 period, even though the medium-term trend may be gradually shifting toward a stronger yen.

2. A Weak Yen: A Positive Effect on Foreign Buyers' Home-Buying Sentiment

When converted into strong foreign currencies (USD, EUR, TWD, SGD, etc.), a weak yen makes Japanese real estate “relatively cheap” in the eyes of international buyers — this is the clearest mechanism of impact and is confirmed by many sources.

Quantitative data from MLIT

*Tokyo's 6 central wards include: Chiyoda, Chuo, Minato, Shinjuku, Bunkyo, and Shibuya.

A few notable points from this data itself

•        The ratio has more than doubled in most areas compared to 2024, reflecting an ongoing upward trend that coincides with the period when the yen has remained weak.

•        Shinjuku Ward has the highest ratio in Tokyo: 14.6%.

•        Among the 308 condo units purchased by foreigners in Tokyo's 23 wards (H1 2025), Taiwan accounted for over 60% (192 units), mainland China ranked only 2nd with 30 units, and Singapore ranked 3rd with 21 units. This contrasts with the common media narrative that “Chinese buyers are snapping up properties” — official data shows that Taiwan is actually the largest group by share in Tokyo.

•        Osaka saw its foreign buyer ratio decline from 5.1% (2024) to 4.3% (H1 2025), moving in the opposite direction to Tokyo's rising trend, showing that the impact of a weak yen is not uniform across cities.

The “double discount” psychological mechanism

For buyers using strong foreign currencies, a weak yen creates a “double discount” effect: even as the yen-denominated price of a home rises, that increase can be offset or outweighed by the yen's depreciation, meaning the price converted into foreign currency remains cheaper than, or comparable to, a few years ago. This is the logic frequently cited by brokerage firms and institutions when explaining why foreign capital flowing into Japanese real estate has remained strong even as yen-denominated prices have risen sharply.

3. Rising Interest Rates: Different Effects on Loan Buyers vs. Cash Buyers

The impact of BOJ interest rates on foreign buyers depends heavily on whether they are borrowing within Japan or not.

3.1. The group buying with domestic Japanese loans

This is typically made up of foreigners with long-term residency visas and income earned in Japan — the group directly affected by rising interest rates.

According to banking sources, the average floating loan rate at major banks (mega banks) surpassed 1% per year in April 2026 — the highest level in around 15 years. Long-term fixed loan rates (e.g., Flat 35) have also risen from around 2% to roughly 3%, according to some early-2026 forecasts.

For this group, rising borrowing costs reduce affordability and may make home-buying sentiment more cautious — similar to the impact felt by Japanese homebuyers.

3.2. The group buying with cash or capital from abroad

This group is more common among international investors purchasing high-end properties in central areas, and is less affected by Japan's domestic interest rates, since their investment decisions don't depend on the cost of domestic borrowing.

Foreign capital inflows into Japanese real estate in 2025 remained at an estimated scale of around 6 trillion yen, with no sign of foreign investors becoming more cautious despite rising interest rates.

In other words: rising BOJ interest rates create downward pressure on home-buying sentiment among foreigners who are settling in Japan or borrowing domestically, but the effect is much weaker, or nearly absent, among international investors buying with cash — a group that holds a significant share of the high-end condo segment in central Tokyo and Osaka.

4. When the Two Forces Intersect: Which Scenario Is Most Favorable/Unfavorable?

Combining these two variables, we can outline 4 possible cases:

Japan is currently in Case 2: the yen is weak, but interest rates have risen to their highest level in 31 years. This may help explain why the ratio of foreign buyers purchasing homes in Tokyo's 23 wards continues to rise (according to MLIT's H1 2025 data) even as the pace of condo price growth in that same area shows signs of slowing.

In other words, foreign capital is still flowing in, but the momentum is increasingly shifting toward cash buyers who are less sensitive to interest rates, while buyers who need financing (including Japanese buyers) are becoming more cautious.

Conclusion: Two Variables to Watch in the Second Half of 2026

A weak yen and rising BOJ interest rates are simultaneously affecting foreign buyers' home-purchasing sentiment in Japan, but in opposite directions. Official MLIT data shows that the ratio of foreigners buying new condos in central Tokyo areas is rising noticeably, with Taiwan — not China — being the nationality group with the largest share.

For foreign buyers or investors considering the Japanese market, two points worth monitoring in the second half of 2026 are:

•        Whether the BOJ will continue raising interest rates along the path forecast by financial institutions.

•        Whether the yen will continue to stay weak or begin a strengthening trend, as suggested by some of Nomura's and Daiwa Asset Management's forecasts for the end of 2026.

If both variables reverse at the same time (a stronger yen combined with continued rate hikes), this would be the most unfavorable scenario for foreign home-buying sentiment since the 2022 period.

👉 If you're considering the timing for buying a home or investing in real estate in Japan, contact ESTATE PLUS to have our consulting team provide the latest updates on exchange rates and interest rates, along with an analysis tailored to your specific financial goals.

This article was compiled from the following sources: Japan's Ministry of Land, Infrastructure, Transport and Tourism (MLIT – survey published November 25, 2025), the Bank of Japan (BOJ), nippon.com, Nomura Securities, Daiwa Asset Management, SMBC Nikko Asset Management, JLL, and several banking/real estate brokerage industry sources (mogecheck.jp, finwell.jp, 住まいサーフィン). Data updated through June 2026. The exchange rate and interest rate forecasts mentioned in this article represent the views of individual institutions at the time of publication, are subject to change, and do not constitute investment advice. This article is a compilation of reference information; please verify the original sources and consult a financial/legal professional before making any decisions.