Have investors missed the boat on Japan’s property market amid tensions with China?

Japan’s property market was less likely to deliver significant rewards to investors because of heightened geopolitical tensions with China, more than a tightened monetary policy, according to analysts.

“The yield spread is likely to narrow as cap rates are unlikely to widen,” said Chinatsu Hani, head of research at Tokyo-based CBRE. “However, spreads should remain in positive territory.”

The Bank of Japan in March last year began unwinding its nearly decade-long negative interest rate policy – introduced in 2016 to encourage spending and investment by penalising keeping money in the bank – as the country’s economy appeared to recover.

Even with interest rates at a 15-year high of 0.75 per cent, Japan’s monetary stance remained among the most investor-friendly in developed markets. The US benchmark interest rate stood at 3.75 per cent, with the Euro zone’s main refinancing rate at 2.15 per cent and the UK’s benchmark interest rate at 3.75 per cent.

“Rising interest rates generally reduce real estate investment attractiveness, but Japan presents a nuanced scenario,” said Pamela Ambler, head of investor intelligence and strategy for Asia-Pacific at JLL.