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.


  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’’ (

    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” (


    Froeb/McCann/Ward/Shor, Managerial Economics, A Problem Solving Approach 3rd Edition, South-Western, Cengage Learning 2014, OH Property Deals Surge as Rising Rents Lure Buyers- By Kathleen Chu and Katsuyo Kuwako Sep 3, 2014 2:33 AM ET

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  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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