Household debt in Japan reached a critical milestone in 2023, exceeding average household income for the first time in the history of the Ministry of Internal Affairs and Communications’ “Household Income and Expenditure Survey,” which began in 2002. The average debt of households with two or more people climbed to 6.55 million yen, surpassing the average income of 6.42 million yen. This marks a dramatic shift from 2010, when household debt was around 80% of income.
The increase in debt highlights a growing financial strain on Japanese families, particularly as property prices continue to outpace income growth. According to the household survey, about 90% of household debt is attributed to housing and land, such as mortgages. This trend signals a deeper structural shift in household finances, placing Japanese households in an increasingly precarious financial position as they struggle to balance homeownership with financial stability.
Key Drivers of Rising Debt in Japan
The primary driver behind Japan’s rising household debt is the surge in property prices, which has far outpaced wage increases. For many families, especially those in their 30s, buying a home means taking on larger mortgages than ever before. This trend is particularly evident in urban areas like Tokyo, where property prices show no signs of slowing down. The average price for newly built detached homes, for instance, hit a record high of ¥68.64 million (about $487,000) in August, while condominium prices continue to rise amid heightened construction costs and sustained demand.
The debt burden is especially high for younger homeowners. Among households led by people in their 30s, mortgage debt often exceeds annual income by a factor of 2.7 and savings by a factor of 2.3, creating a strain that leaves little room for financial security. This level of debt is the highest among all age groups in Japan, and it underscores the growing challenge for families to achieve homeownership without compromising financial stability. Experts from the Dai-ichi Life Research Institute note that without significant improvements in income, homeowners may face long-term financial vulnerability, particularly as interest rates begin to rise.
Risk Factors of Variable-Rate Mortgages
A high reliance on variable-rate mortgages adds another layer of risk for Japanese homeowners. Approximately 77% of new mortgages in Japan are variable-rate, meaning monthly payments could increase if interest rates rise further. The recent Bank of Japan rate hikes this year, the first in almost two decades, have raised serious concerns about potential increases in mortgage costs.
Adding to this risk, a recent survey found that over 23.1% of variable-rate mortgage holders have no concrete plan for handling potential repayment increases. This lack of preparedness makes many families financially vulnerable, as even slight increases in monthly payments could strain budgets. While many borrowers indicate they would cut back on savings and living expenses, rising inflation makes this strategy increasingly challenging.
Global Context and Future Outlook
Japan’s rising household debt and the trend toward variable-rate mortgages signal potential challenges ahead, particularly as the Bank of Japan may continue to adjust rates to control inflation. For many Japanese homeowners, the outlook suggests a need to revisit financial strategies, with careful attention to income, savings, and debt ratios.
In comparison, while the United States also faces record-high household debt, the composition and dynamics differ significantly. U.S. mortgage debt made up about 70% of total household debt in 2023, with the average mortgage debt reaching $244,498. However, U.S. mortgages are predominantly fixed-rate, which shields homeowners from immediate payment increases when rates rise.
As Japan enters an era with heightened interest rates, financial experts such as at Sumitomo Mitsui Trust emphasize that households need to carefully reassess their risk tolerance. This new environment calls for a careful balance between homeownership aspirations and financial security, with close attention to both current income and long-term financial stability.
Conclusion
Japan’s housing market faces a pivotal moment as mounting household debt and the prospect of rising interest rates converge to create unprecedented challenges. With variable-rate mortgages predominant and housing costs continuing to climb, particularly in major cities, Japanese households—especially younger generations—must carefully consider both financial capacity and long-term stability.
