Japan’s ongoing struggle to cut ties with fossil fuels might seem like distant news, but the ripple effects of its energy policy are showing up on our radar here at home in Canada—and it’s homeowners who may feel it most. With a growing global demand for fossil fuels and an uncertain transition to cleaner energy, countries like Japan are influencing commodity prices, inflation, and even interest rate trends. That matters directly to those tracking [best mortgage rates](https://unrate.ca/mortgages/) or taking on new loans in today’s unpredictable housing market.
Global Energy Shifts and Their Local Impact
Japan, a member of the G7 and the third-largest economy in the world, has made headlines this year by reducing fossil fuels to under 60% of electricity production for the first time ever. Yet, over 80% of its total energy still comes from fossil-based imports. Why does this matter to Canadian homeowners? Because global fuel dependency—especially in influential countries—can increase energy prices and contribute to inflationary pressure worldwide.
Inflation plays a critical role in the Bank of Canada’s monetary policy decisions. When global fossil fuel demand remains high, it pushes up prices across sectors—everything from heating our homes to transporting building materials for new housing. According to the Bank of Canada, energy prices remain a key component of the Consumer Price Index (CPI), influencing how quickly rates rise or fall.
In the mortgage world, this means prolonged rate hikes may become necessary to tame inflation. Homebuyers waiting for rate relief might need to be more patient than expected, especially with inflation still sitting above the BoC’s 2% target as of Q2 2024. And if your mortgage is up for renewal, these pressures could spell higher payments in the interim.
What This Means for Canadian Real Estate
Over the last 18 months, the Canadian real estate market has been trying to recover from a wild ride of sharp interest rate hikes. The cooling effect worked—average home prices dropped and buyer activity slowed—but now we’re stuck in a limbo where many households are too cautious to move forward amid uncertainty.
Japan’s hesitant shift toward energy independence reflects a broader pattern; countries are struggling to balance long-term green goals with short-term affordability. Canada isn’t immune to this dilemma. We export oil and gas, but we also rely heavily on global markets—and so do our construction and manufacturing sectors, which are energy-intensive.
As a result, housing construction remains below what’s needed to ease our national supply crunch. The Canada Mortgage and Housing Corporation (CMHC) noted that housing starts dropped 5% year-over-year by mid-2024. That decreased supply means prices are unlikely to fall significantly, especially in urban centres where demand remains strong.
If you’re planning to renovate or build, you may want to explore a [construction mortgage](https://unrate.ca/mortgages/construction-mortgage/) while rates are relatively stable. Waiting might seem safe, but materials and financing could both get more expensive if global energy prices remain volatile.
Interest Rate Outlook: Stay Cautious, But Don’t Stall
The Bank of Canada held rates at 5.0% during its June 2024 meeting, opting to wait for more economic clarity before making its next move. With inflation still sticky and global supply chains under stress, even central banks are hesitant to shift course too quickly.
While many economists are forecasting rate cuts later in 2024, the timing depends on several factors—including what happens abroad. Japan’s tepid energy transition and ongoing import dependency could further tighten global oil markets, pushing inflation higher worldwide. That doesn’t help our case for immediate relief here in Canada.
If you’re in a variable-rate mortgage, it might be time to sit down and revisit your strategy. A [fixed-rate mortgage](https://unrate.ca/mortgages/fixed-rate/) could offer more predictability if you’re looking for stability, especially in an uncertain interest rate environment. For homeowners nearing renewal, now is the time to run the numbers using a [mortgage calculator](https://unrate.ca/mortgage-calculator/) to get ahead of potential surprises.
And if your home equity has built up over the last few years, you may want to explore options like a [HELOC](https://unrate.ca/mortgages/heloc/) to access funds without locking into today’s mortgage rates. Flexibility can be a financial asset in times like these.
Homeowners Need to Think Globally—and Act Locally
It’s easy to view Japan’s energy dependency as a niche issue, but the reality is that global energy markets are deeply interconnected. As countries like Japan, Germany, and even Canada shift their long-term energy plans, homeowners are increasingly feeling the downstream effects—especially when it comes to the cost of borrowing and the availability of housing.
You don’t need to be an economist to realize how these trends impact your mortgage. Whether you’re buying your first home, refinancing, or tapping into equity via a [reverse mortgage](https://unrate.ca/mortgages/reverse-mortgages/), being proactive about your financial planning pays off.
At Unrate, we help Canadians sift through the noise and make clear, confident mortgage decisions. Let’s find a strategy that works for your goals and budget—no matter what headlines are dominating tomorrow’s news cycle.
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