Tokyo's rising rents show inflation cycle deepening for Bank of Japan
[TOKYO] Apartment rents in Tokyo are rising at the fastest pace in 30 years in the latest sign for the Bank of Japan (BOJ) that the nation's inflation trend is spreading deeper through the economy.
Rents in the capital climbed 1.3 per cent from a year earlier in April and May for the largest gains since 1994, according to the Ministry of Internal Affairs. While the growth may seem modest compared with core inflation in the capital of 3.6 per cent or soaring rents worldwide, it still suggests the inflation cycle has finally reached rented property in Japan. That's after decades of stagnation following the bursting of an asset bubble in the early 1990s.
The widening pattern of rising prices and rents backs the case for further interest rate hikes by the central bank.
'The rise in rent reflects what the BOJ calls a shift in 'norms',' said Hiroshi Kawata, chief Asia economist at Mizuho Research & Technologies. 'This is one of the signs that underlying prices are indeed going up, and in that sense, it can be seen as a factor pushing the BOJ towards normalising monetary policy.'
The central bank features the property market in its semi-annual financial system report as a key topic in need of close monitoring. With property prices and rent falling or largely stationary for most of the two decades following Japan's asset bubble crash, the BOJ has conducted research into the way stagnant rent was blocking progress in achieving inflation. But the dynamics have changed with the onset of inflation that has now exceeded or matched the BOJ's 2 per cent target for more than three years.
Rent, including the rentable value of houses people own, accounts for roughly 20 per cent of Japan's overall inflation basket, so an upturn can help drive growth in the consumer price index (CPI).
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For people living alone in private accommodation, rent accounted for 28.3 per cent of monthly spending, according to household expenditure data for 2024. While the share of rent in the total spending of families tends to be smaller, the impact of higher outlays on accommodation is likely to further fuel a change in inflation expectations and behaviour among households of all sizes.
'Rents were much higher than I imagined,' said Megumi Morimoto, a 30-year-old office worker who was searching for an apartment in Tokyo's popular Shibuya district in May with a monthly budget of under 90,000 yen (S$794). 'I had to give up on a lot of the features I initially wanted. Within my budget, the options were places typically built half a century ago that don't meet current earthquake standards – or even stigmatised properties.'
Nationwide the gains have been smaller, with the national rent index rising 0.5 per cent in May after years of stagnation. Tokyo's price acceleration has been more pronounced as the population in the capital continues to increase.
Higher mortgage costs are a key factor driving the trend. The end of the BOJ's negative interest rate last year prompted banks to lift floating mortgage rates.
Major lenders such as Mizuho Financial Group and Mitsubishi UFJ Financial Group now offer prime rates of 1.875 per cent, the highest level since the Lehman shock of 2008.
With nearly 80 per cent of Japanese homebuyers opting for floating-rate loans, monthly repayments have risen, and landlords who are still paying off mortgages are passing those added costs onto tenants.
Housing loans are getting bigger too as property prices in the capital surge, supported by a booming stock market and foreign investment encouraged by the weak yen.
Condominium prices rose 12.2 per cent in Tokyo from a year ago in April. The pace of growth in Tokyo is the fifth fastest among global cities, behind Sydney and New York, according to the Japan Real Estate Institute.
Rising maintenance costs are another key reason rents are going up.
'For example, when an air conditioner breaks, it's the landlord's responsibility to replace it,' said Masayuki Takahashi, chief analyst at Tokyo Kantei, a real estate information provider. 'Now that both equipment and labour costs have gone up, landlords are gradually raising rents to offset those expenses.'
Takahashi also suggested that the growing presence of foreign investors who own property in Japan may be accelerating the shift. Many of these owners are unfamiliar with Japan's custom of fixing the rent for the duration of a two-year contract.
In the second half of fiscal 2024, between 20 per cent and 40 per cent of new condominiums in greater Tokyo were bought by foreign investors, according to a survey by Mitsubishi UFJ Trust and Banking Corporation released in March.
The internal affairs ministry is scheduled to release updated rent data for June on Friday along with CPI figures for the capital.
While the spread of inflation has largely been good news for policymakers trying to generate a positive growth cycle in the economy, the downside is the cost-of-living crunch that comes with it, especially when prices rise too quickly. That's the top issue for voters in opinion polls ahead of next month's upper house election and helps explain why Prime Minister Shigeru Ishiba's government is pledging to give 20,000 yen in cash handouts per person and to reinstate utility subsidies.
'Since most of my take-home pay is now eaten up by rent, I really need to take a hard look at my regular expenses,' Morimoto said. 'I'm trying to cut back wherever I can. That means food and entertainment.' BLOOMBERG
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[TOKYO] Apartment rents in Tokyo are rising at the fastest pace in 30 years in the latest sign for the Bank of Japan (BOJ) that the nation's inflation trend is spreading deeper through the economy. Rents in the capital climbed 1.3 per cent from a year earlier in April and May for the largest gains since 1994, according to the Ministry of Internal Affairs. While the growth may seem modest compared with core inflation in the capital of 3.6 per cent or soaring rents worldwide, it still suggests the inflation cycle has finally reached rented property in Japan. That's after decades of stagnation following the bursting of an asset bubble in the early 1990s. The widening pattern of rising prices and rents backs the case for further interest rate hikes by the central bank. 'The rise in rent reflects what the BOJ calls a shift in 'norms',' said Hiroshi Kawata, chief Asia economist at Mizuho Research & Technologies. 'This is one of the signs that underlying prices are indeed going up, and in that sense, it can be seen as a factor pushing the BOJ towards normalising monetary policy.' The central bank features the property market in its semi-annual financial system report as a key topic in need of close monitoring. With property prices and rent falling or largely stationary for most of the two decades following Japan's asset bubble crash, the BOJ has conducted research into the way stagnant rent was blocking progress in achieving inflation. But the dynamics have changed with the onset of inflation that has now exceeded or matched the BOJ's 2 per cent target for more than three years. Rent, including the rentable value of houses people own, accounts for roughly 20 per cent of Japan's overall inflation basket, so an upturn can help drive growth in the consumer price index (CPI). A NEWSLETTER FOR YOU Tuesday, 12 pm Property Insights Get an exclusive analysis of real estate and property news in Singapore and beyond. Sign Up Sign Up For people living alone in private accommodation, rent accounted for 28.3 per cent of monthly spending, according to household expenditure data for 2024. While the share of rent in the total spending of families tends to be smaller, the impact of higher outlays on accommodation is likely to further fuel a change in inflation expectations and behaviour among households of all sizes. 'Rents were much higher than I imagined,' said Megumi Morimoto, a 30-year-old office worker who was searching for an apartment in Tokyo's popular Shibuya district in May with a monthly budget of under 90,000 yen (S$794). 'I had to give up on a lot of the features I initially wanted. Within my budget, the options were places typically built half a century ago that don't meet current earthquake standards – or even stigmatised properties.' Nationwide the gains have been smaller, with the national rent index rising 0.5 per cent in May after years of stagnation. Tokyo's price acceleration has been more pronounced as the population in the capital continues to increase. Higher mortgage costs are a key factor driving the trend. The end of the BOJ's negative interest rate last year prompted banks to lift floating mortgage rates. Major lenders such as Mizuho Financial Group and Mitsubishi UFJ Financial Group now offer prime rates of 1.875 per cent, the highest level since the Lehman shock of 2008. With nearly 80 per cent of Japanese homebuyers opting for floating-rate loans, monthly repayments have risen, and landlords who are still paying off mortgages are passing those added costs onto tenants. Housing loans are getting bigger too as property prices in the capital surge, supported by a booming stock market and foreign investment encouraged by the weak yen. Condominium prices rose 12.2 per cent in Tokyo from a year ago in April. The pace of growth in Tokyo is the fifth fastest among global cities, behind Sydney and New York, according to the Japan Real Estate Institute. Rising maintenance costs are another key reason rents are going up. 'For example, when an air conditioner breaks, it's the landlord's responsibility to replace it,' said Masayuki Takahashi, chief analyst at Tokyo Kantei, a real estate information provider. 'Now that both equipment and labour costs have gone up, landlords are gradually raising rents to offset those expenses.' Takahashi also suggested that the growing presence of foreign investors who own property in Japan may be accelerating the shift. Many of these owners are unfamiliar with Japan's custom of fixing the rent for the duration of a two-year contract. In the second half of fiscal 2024, between 20 per cent and 40 per cent of new condominiums in greater Tokyo were bought by foreign investors, according to a survey by Mitsubishi UFJ Trust and Banking Corporation released in March. The internal affairs ministry is scheduled to release updated rent data for June on Friday along with CPI figures for the capital. While the spread of inflation has largely been good news for policymakers trying to generate a positive growth cycle in the economy, the downside is the cost-of-living crunch that comes with it, especially when prices rise too quickly. That's the top issue for voters in opinion polls ahead of next month's upper house election and helps explain why Prime Minister Shigeru Ishiba's government is pledging to give 20,000 yen in cash handouts per person and to reinstate utility subsidies. 'Since most of my take-home pay is now eaten up by rent, I really need to take a hard look at my regular expenses,' Morimoto said. 'I'm trying to cut back wherever I can. That means food and entertainment.' BLOOMBERG
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