The determinants of residential property prices in Japan: Analyses of different monetary policy regimes

• Author: Takayasu Ito
• DOI: http://doi.org/10.1002/jcaf.22476
• Published date: 01 January 2021
• Date: 01 January 2021

© 2020 Wiley Periodicals, Inc. wileyonlinelibrary.com/journal/jcaf J Corp Acct Fin. 2021;32:90–95.

90

BLIND PEER REVIEW

The determinants of residential property prices in Japan:

Analyses of different monetary policy regimes

Takayasu Ito

School of Commerce, Meiji University,

Tokyo, Japan

Correspondence

Takayasu Ito, School of Commerce, Meiji

University, Tokyo, Japan.

Email: tito747@meiji.ac.jp

Abstract

Residential property prices in three regions in Japan are influenced by stock

price, but not by interest rate, in the first period of sample period, from April

2008 to March 2013 The wealth effect from stock to the real estate market

holds. The sensitivity of interest rates to residential property markets is not

confirmed. Furthermore, the monetary policy adopted by the Bank of Japan

(BOJ) is not as strong in the second period. Residential property prices are

influenced both by stock price and interest rate in the second period, from

April 2013- to August 2019. The wealth effect from stock to the real estate mar-

ket holds. The aggressive non-traditional monetary policy enacted by the BOJ

flattens the yield curve of long-term interest rates. Comparing the impact of

stock price and interest rate in the three regions under study, Tokyo enjoys the

greatest effects.

KEYWORDS

interest rate, monetary policy, residential property price, stock price

1|INTRODUCTION

This paper analyzes the determinants of the real estate mar-

ket in Japan under different monetary policy regimes. The

determinants are stock price and interest rate. The real estate

market under analysis entails real residential property prices

in three major regions in Japan: Tokyo, Nagoya, and Osaka.

The regions of Tokyo, Nagoya, and Osaka are at the prefec-

tural level. Nagoya is the capital city of the Aichi prefecture.

The entire sample period is divided into two. The first

period is prior to the introduction of a strong non-traditional

monetary policy. The Bank of Japan (BOJ) adopts weak

non-traditional monetary policy such as comprehensive eas-

ing policy in this period. The second period is after the intro-

duction of a strong non-traditional monetary policy. The

BOJ introduces “quantitative and qualitative easing (QQE)”

on April 4, 2013. The BOJ introduces a “negative interest

rate policy (NIRP)”on January 29, 2016.

Two important issues are examined in this paper.

First, what is the relationship between the residential

property market and stock price? As Kapopoulos and

Siokis (2005) mentions, “investors are supposed to hold

real estate and stock as risk assets”. They also suggest

that “one of the mechanisms for interpreting the relation-

ship between investment in real estate and in stock is the

wealth effect. Investors who make unanticipated gains in

share prices will invest in real estate. Hence, the stock

market will lead the housing market”.

Second, what is the relationship between the residen-

tial property market and interest rate? Results obtained

by Akimov, Stevenson, and Zagonov (2015) and Chaney

and Hoesli (2010) show that “returns from real estate and

real estate investment trusts (REITs) are influenced by

interest rate movements”.“This is mainly because pur-

chasers borrow money from banks for the aquisition of

real estate. Thus, higher interest rates increase the costs

of obtaining real estate”.

There are four contributions of this paper to the

extant literature. First, Lin and Lin (2011) cover a sample

period of weak non-traditional monetary policies. This

Received: 3 July 2020 Accepted: 4 October 2020

DOI: 10.1002/jcaf.22476

J Corp Acct Fin. 2020;1–6. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals LLC 1