2023 Outlook of Economy and Real Estate Markets in Japan

ABSTRACT

[...]the 2022 real estate transaction market in Japan was favorable in terms of both prices and transaction volume. Because the Overnight Index Swap ("OIS") 10-year rate of the Japanese Yen (not subject to the BOJ's YCC) is trading at a level close to 0.9%, and if the market is believed to consider the appropriate level of the long-term interest rate for the Japanese yen to be much higher than 0.5%, if JGB's yield continues to remain at around 0.5% level, the possibility of further policy revisions by BOJ will increase. The positive spiral of stable price increases with stable wage growth, which the government and BOJ assume as precondition for price stability, is not functioning, raising concerns about a downturn in the Japanese economy due to a decline in personal consumption. Because of this mixed economic picture, unless extreme conditions such as a sharp acceleration of price hikes occur, it is unlikely that a major change in monetary policy, i.e., a halt in monetary easing, will be implemented before the change of the BOJ Governor scheduled for April 2023. According to data disclosed by Sanko Estate, a major leasing broker in Japan, the vacancy rate for large-scale buildings (standard floor size over 7,000 sqf) in the 23 wards of Tokyo, which was at its lowest level of 0.69% in the first quarter of 2020, has risen to 4.52% as of November 2022 due to cancellation of floors as a result of behavioral restrictions caused by COVID-19, reduction in corporate activities, and changes in the way offices are used due to the spread of work-from-home.