The View | Why surging Tokyo flat prices are unlikely to herald a new Japan asset price bubble

Tokyo flat prices may have gone through the roof, but prudent BOJ policymakers are likely to keep rates low. This, plus relatively high affordability, means conditions are a lot less bubbly than they might appear

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Pedestrians walk through the Ginza district of Tokyo on June 17. Buyers get more bang for their buck in Japan’s capital, compared with Hong Kong, Singapore, London and New York. Photo AFP

Published: 4:30pm, 19 Jun 2023

The bursting of Japan’s asset bubble in the early 1990s was one of the most consequential financial shocks suffered by a major economy. Not only did it consign the country to decades of little to no growth, it entrenched a deflationary mindset among consumers and businesses that has proved difficult to break.

To this day, the Bank of Japan (BOJ) persists with the ultra-loose monetary policy introduced a decade ago to banish deflation and lift growth, even though a gauge of consumer prices – which excludes the impact from energy and fresh food – reached 4.1 per cent in April, its highest since 1981.

For the BOJ, premature policy tightening could jeopardise years of painstaking efforts to get prices to rise. There is still plenty of evidence of the lasting effects of stagnation. Even after Japanese firms agreed on the biggest wage increase in decades, real wages fell 3 per cent in April, perpetuating the decline in real spending power.

In another sign Japan has yet to fully recover from the bursting of its asset bubble, the Nikkei 225 is still about 15 per cent below its 1989 peak. This is even after having surged 20 per cent since early April.

Yet, in one crucial yet overlooked corner of the market, inflation has roared back. In February, the average asking price of a 70-square-metre (754 square feet) second-hand flat in Tokyo’s 23 wards hit a record high of nearly 70 million yen (US$492,000), exceeding its level at the top of the bubble.

The price has soared 76 per cent in the past decade. In Tokyo’s six central wards, the average price stands just above 100 million yen, up 93 per cent since 2013.