FTD-Serie: Serie Business English

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Business English: Rising land prices have ripple effect across Japan

Last year's increase in residential and commercial land prices is the first annual rise since the bursting in 1990 of Japan's asset price bubble. von Michiyo Nakamoto (Tokyo)

Average land prices in Japan rose last year for the first time in 16 years, according to government figures, providing confirmation that Japan is finally pulling out of asset deflation and that its economic recovery is broadening out across the country. Nationwide residential land prices rose by an average of 0.1 per cent in the year to January 1, while commercial land prices rose 2.3 per cent, according to a government survey. The rise compares with a 2.7 per cent drop in residential and commercial land prices in the previous year and is the first annual rise since the bursting in 1990 of Japan's asset price bubble. The rise in land prices is expected to help consumer sentiment as well as boost economic activity. "There is obviously a useful wealth effect element to it. More importantly, once you're confident that land prices are no longer declining, it should encourage development of residential and non-residential property as the recovery broadens out," said Richard Jerram, chief economist at Macquarie Securities in Tokyo. However, the recent rise in land prices has also been a factor behind the Bank of Japan's eagerness to raise interest rates, despite political opposition. Toshihiko Fukui, central bank governor, told the Diet yesterday that rising land prices and currency rates were among the factors that could affect monetary policy. He later told reporters that "taken as a whole, land price moves are not excessive", but indicated that in deciding monetary policy, the central bank would track rising land prices as well. There is concern that sharp price increases in certain urban areas are creating an asset bubble - something the central bank has been keen to avoid following its experience in the 1980s. In the three largest urban areas - Tokyo, Nagoya and Osaka - residential land prices posted a 2.8 per cent increase while commercial land prices rose 8.9 per cent. Although rural areas overall saw a 2.7 per cent decline in residential land prices and a 2.8 per cent decline in commercial land prices, rural cities, such as Sendai in the north and Fukuoka in the south-west, saw prices rise for the first time since the end of the bubble era. With the exception of sharp rises in some areas, many analysts do not believe the overall increase in land prices represents an asset bubble since there is still a comfortable gap between the yield on real estate investment trusts and the yield on government bonds. Tokyo residential land prices are still only at levels seen in 1984 while commercial land prices have only recovered to their 1980 level.

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