Do long‐term swap rate and stock price give an impact on Japanese Real Estate Investment Trust market under quantitative and qualitative easing and negative interest rate policy?

• Published date: 01 July 2020
• Date: 01 July 2020
• Author: Takayasu Ito
• DOI: http://doi.org/10.1002/jcaf.22431

BLIND PEER REVIEW

Do long-term swap rate and stock price give an impact

on Japanese Real Estate Investment Trust market

under quantitative and qualitative easing and negative

interest rate policy?

Takayasu Ito

School of Commerce, Meiji University,

Tokyo, Japan

Correspondence

Takayasu Ito, School of Commerce, Meiji

University, 1-1 Kanda-Surugadai,

Chiyoda-ku, Tokyo 101-8301, Japan.

Email: tito747@meiji.ac.jp

Funding information

Institute of Social Sciences; Meiji

University

Abstract

An increase in stock price has a positive impact on the Real Estate Investment

Trust (REIT) market, but an increase in interest rate has a negative impact

on the REIT market in the regime of quantitative and qualitative easing

(QQE). The wealth effect holds. As for the impact of interest rate, swap rate

of 30 years is larger than that of 20 years in the period of QQE. On the other

hand, all the negative coefficients of stock price are statistically significant at

the 1% level in the period of negative interest rate policy (NIRP). But none of

the negative coefficients of interest rate are significant even at the 10% level.

This result is very rare in the analysis of REIT market not only in Japan, but

also in other countries such as USA. Investors tend to buy REITs to compen-

sate for the sluggish stock market and reduced gains in the fixed income mar-

ket. When the Bank of Japan adopts QQE, normal function of REIT market

is maintained. But after they introduce NIRP, normal function of REIT mar-

ket is lost. This phenomenon is a negative effect of NIRP.

KEYWORDS

NIRP, QQE, REIT, stock price, swap rate

1|INTRODUCTION

This paper focuse s on Real Estate Inve stment Trust

(REIT) market in Japan under the non-traditional differ-

ent monetary policy regimes. The Bank of Japan (BOJ)

introduces “quantitative and qualitative easing (QQE)”

on April 4, 2013. They introduce “negative interest rate

policy (NIRP)”on January 29, 2016. They introduce

“yield curve control (YCC)”on September 21, 2016

while maintaining NIRP. They indicate that the “target

of the 10-year Japanese Government Bond (JGB) yield is

around 0%.”They strengthen the framework for contin-

uous powerful monetary easing while maintaining NIRP

and YCC.

1

The purpose of this paper is to analyze the impacts of

stock price and long-term interest rate on REIT market

under the non-traditional monetary policy regimes,

namely QQE and NIRP. As for stock price, Kapopoulos

and Siokis (2005) mention that “one of the mecha-

nisms for interpreting the relationship between invest-

ment in real estate and stock is the wealth effect.”Ito

(2013, 2016, 2018) gets a conclusion that “returns on

REITs are highly correlated with stock market returns

in Japan.”

As for interest rate, Chen and Tzang (1988) support

the propositio n that “interest rates are a significant fac-

tor in REIT prici ng.”Ito (2013, 2016, 2018) shares the

same results as Chen and Tzang (1988). These results

Received: 27 August 2019 Revised: 31 October 2019 Accepted: 14 November 2019

DOI: 10.1002/jcaf.22431

J Corp Acct Fin. 2020;31:15–19. wileyonlinelibrary.com/journal/jcaf © 2019 Wiley Periodicals, Inc. 15