Friday, February 6, 2015

Why are Tokyo Apartment prices rising?


The Financial Times has a good article on the effects of Japan's program to print money to buy bonds (increasing the supply of loans), which drives down long term interest rates (the price of a loan).

Lower interest rates increase housing demand, which drives up the price of houses, clearly illustrated in the graph above.  

Lower interest rates also depreciate the yen relative to foreign currencies due to lower demand for yen in the market for foreign exchange (because foreign investors are less likely to want yen to invest in Japanese bonds because of the lower rates).  This makes Tokyo apartments look less expensive to foreign buyers, which also increases demand for housing.  

From a macroeconomics point of view, this is supposed to start a virtuous cycle:  higher prices lead to higher wages which causes consumers to spend more:  because one consumer's spending is another worker's income, the cycle continues  This is the so-called "Keynesian multiplier."

In Tokyo, at least, it is not working because consumers are buying smaller houses, 

Until consumers get more confident, it will be hard to create a cycle of positive inflation, where rising spending provides the fuel for wage increases and thus more spending. The popularity of Abenomics will also remain under threat: smaller apartments are not what the Japanese public expected from an economic stimulus.

11 comments:

  1. Apartment prices are rising in Tokyo –Because:” Lower mortgage rates increase demand for housing which drives prices up” (Froeb). People are currently betting that rents will continue to increase through 2020 and are currently investing in Tokyo.

    In 2020 Tokyo is “hosting the Olympics, construction to improve the public infrastructure and built new communities has begun, this includes state of the art earth quake residential high rises’’ (www.hotstockmarket.com).

    Japanese Prime Minister Shinzo Abe announced plans to address Japan’s economic with a ‘three arrow’ policy approach aka Abenomics:
    • First, monetary easing spur inflation to a 2% annualized target rate.
    • Second, implement fiscal stimulus programs.
    • Third, carry out a series of structural reforms.

    Creating inflation, consumption will increase as consumers begin to believe that prices will be higher in the future” (www.forbes.com)

    References:

    Froeb/McCann/Ward/Shor, Managerial Economics, A Problem Solving Approach 3rd Edition, South-Western, Cengage Learning 2014, OH

    http://en.wikipedia.org/wiki/Abenomics

    http://www.ft.com/intl/cms/s/0/fec40338-a2d2-11e4-ac1c-00144feab7de.html#axzz3UaqOok2U

    http://www.hotstockmarket.com/t/280455/japan-tokyo-real-estate-market-housing-apartments-commercialTokyo Property Deals Surge as Rising Rents Lure Buyers- By Kathleen Chu and Katsuyo Kuwako Sep 3, 2014 2:33 AM ET


    www.forbes.com/sites/greatspeculations/2015/01/06/abenomics-enters-show-me-phase-as-japan-struggles-with-growth/

    ReplyDelete
  2. consumers will be buying a small apartments until the rising costs of rent will be not decrease . every one can see easily how fast rising the costs of rent.


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  6. Why are Tokyo Apartment prices rising?
    Japan's Prime Minister, Abe, and the Central Bank governor of Japan, Mr. Kuroda, are divided by trying to balance the need to reduce the debt compared with boosting Japan's economy per a recent article in the Economist.
    One of their differences is the fiscal policy which has been loose, and which deals with the government expenditures, taxes and debt. Their primary budget deficit at 6.6% GDP, excludes interest payments on debt.
    Another difference is getting rid of Japan's deflation, which the Bank of Japan has not been successful at. Even so they pushed up inflation to 2%. If deflation returns in the coming months, the bank will feel obligated to buy the bonds they sold; if inflation picks up, the Central Bank will begin tighten its monetary policy.
    Advisers to the Central Bank are advising to decrease the inflation rate from 2% to 1%. They have not yet resolved the problem with prices. Per the Trading Economics website chart, Japan’s inflation rate was forecasted to increase to 2.5% in April 2015 from 2.2% in March 2015, and the consumer prices rose 2.4% this past January 2015.
    Japanese are growing anxious as the two most important categories per the consumer price index are: Food (25 percent of total weight) and Housing (21 percent). The consumption tax increased from 5% to 8% in April 2014 and it is planned to increase to 10% this fall 2015.
    Mr. Koruda is postponing the rise of the consumption tax to 2017 debating that Japan's economy will not be able to handle it. The first rise of the consumption tax pushed the economy back into recession, after the Central Bank actions of printing vast quantities of money to purchase bonds failed, and the forecasted structural reforms have not taken place.
    Per the Economist, Japan's economy has helped exporters, but higher prices for imports have not benefited small businesses and households.
    The Economist. {April 11 2015} End of the affair
    ,http://www.tradingeconomics.com/japan/inflation-cpi
    JAPANTODAY, {Apr, 14, 2015} Yen gains after Abe's adviser says it is too low, http://www.japantoday.com/category/business/view/yen-gains-after-abes-adviser-says-it-is-too-low

    ReplyDelete
  7. Lots of cities have same situation now a days
    increasing the rent of houses and accommodations .
    its totally effected for student life ,


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  8. It’s the quality that matters which results in increase of theses stuff. I believe the interest rates only increase when the economic situation is In correct shape and that’s where I have complete confident in Forex trading, it’s a business which always reward me for correct move and also with OctaFX broker, I am able to find daily market news and updates which reflex on results and I am able to perform so much better without even the risk factor getting high.

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  11. officially most essential Tokyo Apartment prices rising with very authentic graphically representation.

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