Tokyo Used Apartment Prices Fall for the First Time in More Than Two Years

Prices for second-hand apartments in Tokyo fell after 28 consecutive months of increases, and the declines that started in central wards have spread across the metropolitan area. The Japan Times attributed the turn to rising mortgage costs as the Bank of Japan raises interest rates and signals willingness to tighten credit further.

Japanese property was one of the clearest beneficiaries of the world's longest experiment with near-zero interest rates. Buyers borrowed at rates close to nothing, foreign investors treated Tokyo as cheap relative to other global cities, and the yen's weakness made purchases cheaper still in dollar terms. The currency remains weak, trading around 158 to the dollar, but the financing cost that supported valuations is no longer near zero.

The equity market has not followed housing. Globes reported that Japanese shares advanced on Thursday morning while Chinese and Hong Kong markets fell, a split that reflects the weak yen supporting exporter earnings even as domestic borrowers pay more.

For an economy that spent three decades trying to end deflation, a fall in asset prices caused by higher rates is the intended consequence of policy normalisation rather than an accident. The question is how far it travels. Japanese households and small landlords carry variable-rate mortgages in large numbers, and a sustained rise in policy rates changes their monthly payments directly rather than at the next refinancing.