For decades, Japan has been one of the world's major sources of inexpensive capital. Extremely low Japanese interest rates encouraged investors to borrow in yen and invest that money in higher-yielding assets elsewhere. This is commonly referred to as the yen carry trade.
As Japanese rates rise, that trade becomes less attractive. Depending on currency movements and how quickly rates rise, some leveraged investors may decide to reduce those positions. That does not automatically mean a stock market crash, but it can become another source of volatility and selling pressure across global financial markets.
The Bank of Japan just told us another hike remains possible if economic conditions continue moving in its expected direction.
Meanwhile, the Fed is fighting its own battle
Here in the United States, the Federal Reserve is dealing with inflation that remains above its target.
The Fed's September projections put 2026 PCE inflation at 3.7% and core PCE inflation at 3.4%. The median projection for the federal funds rate at the end of 2026 is now 4.1%, compared with 3.8% in the June projections.
That is important. It tells us investors should not simply assume that lower rates are right around the corner. The Fed still has meetings scheduled for October 27 to 28 and December 8 to 9, which means there are two more opportunities for policy to change before the end of the year.
What this means for real estate
This is where things get interesting.
A Fed rate hike does not directly determine mortgage rates. Mortgage rates are influenced heavily by the bond market, inflation expectations, and longer-term Treasury yields. Right now, those markets are telling us that borrowing costs could remain elevated.
The 10-year Treasury was around 4.94% on September 17, after touching 5.01% the previous day. Freddie Mac's latest weekly survey showed the average 30-year fixed mortgage at 6.95%, up from 6.76% the week before and 6.71% two weeks earlier.
For real estate investors, that creates both a challenge and an opportunity.
The challenge. Higher rates make deals harder to pencil. Monthly payments increase, cash-on-cash returns can shrink, and buyers who were counting on refinancing into dramatically lower rates may have to rethink their assumptions.
The opportunity. Higher rates also keep more buyers on the sidelines. That can mean less competition, motivated sellers, builder incentives, rate buydowns, and more negotiating power for investors who have cash or access to financing.
This is not a market where we would buy something simply because we think rates will fall next year. The property needs to make sense based on today's numbers. If rates eventually come down, refinancing becomes the bonus, not the strategy required to make the investment work.
That is one of those details you do not think about until the refinance you planned on never arrives. An investment built on a future rate cut is carrying a risk the spreadsheet did not show.
What about home prices?
Investors need to separate the housing market from the mortgage market.
Higher mortgage rates do not automatically mean home prices have to crash. If inventory remains constrained in desirable areas and employment stays relatively strong, prices can remain surprisingly resilient even with expensive financing. That has been the story in much of the Treasure Valley, where local supply has run well below national levels.
But higher-for-longer rates put pressure on affordability, and affordability eventually matters. That means location, rents, purchase price, and negotiating terms become increasingly important. A property with strong rental demand and a good basis is very different from an overpriced property you are hoping appreciation will bail out.
The stock market is where we are watching closely
Stocks have another issue to deal with.
Higher interest rates increase the return investors can earn from relatively safer assets such as Treasuries. When the 10-year Treasury is around 5%, investors naturally start asking how much risk they are willing to take in stocks when they can earn close to 5% in government bonds.
Higher rates also increase borrowing costs for corporations and can put pressure on valuations, particularly in areas of the market trading at expensive multiples.
Now add Japan to the equation. If the BOJ continues raising rates while the Fed keeps U.S. monetary policy tighter, we could see unusual movements in currencies, bonds, and global liquidity. That does not mean markets have to collapse, but we believe investors should be prepared for higher volatility through the end of 2026.
What happens if we get another rate hike?
This is the scenario we will be watching most closely.
If inflation stays stubborn and the Fed hikes again while Japan also continues raising rates, multiple pressures could hit financial markets at the same time. Borrowing costs would climb. Mortgage affordability would tighten further. Bond yields would rise. Bonds and stocks would compete harder for investor capital. Leveraged carry trades could unwind. Currency volatility would increase. Highly leveraged companies and investors would feel the strain.
None of those individually guarantees a major market selloff. But when several begin happening together, risk management becomes much more important.
What we are watching through December
For real estate, we are watching the 10-year Treasury and mortgage rates more closely than the headlines surrounding the Fed.
For stocks, we are watching Treasury yields, corporate earnings, and whether higher rates begin creating cracks in financial conditions.
Globally, we are watching Japan and the yen very closely. The BOJ's September statement specifically said it intends to continue raising its policy rate if economic activity, prices, and financial conditions develop in a way that supports further tightening. That makes the next BOJ meeting another important event for global markets.
The bottom line
We do not think this is a time for investors to panic. We do think it is a time to be disciplined.
For real estate investors, buy deals that work with today's financing, not deals that require 5% mortgage rates next year to make sense. Keep some liquidity available. Do not over-leverage. Look for motivated sellers and opportunities where you can negotiate price, concessions, or financing.
For stock investors, understand that higher rates and tightening global liquidity can create bigger swings than we have become accustomed to.
Most importantly, do not assume the next move from central banks will automatically be a rate cut. The Fed just raised rates, the Bank of Japan just raised rates, and both are telling investors that inflation still matters.
In an environment like this, the returns on a property are protected at the operating level. Every asset we manage at 208.properties runs on the same standards we hold ourselves to: real-time visibility through the Buildium Owner Portal, monthly drive-bys, semi-annual inspections, and an annual client review that re-evaluates pricing and strategy against the current market. When financing costs are this high, that discipline is what keeps a property's cash flow working.
We have just over three months left in 2026, and we have a feeling they are going to be interesting ones.
