Tokyo Land Prices Up. First Time in 14 Years.

Tokyo Land Prices Up. First Time in 14 Years.

March 23, 2005

Japan’s Land, Infrastructure and Transport Ministry released a report tomorrow (I know, it’s the time zone thing) indicating that land prices at five commercial areas in Tokyo edged up an average of 0.5 percent in calendar 2004 for the first increase in 14 years.


Some areas in Osaka and Nagoya also saw significant growth. In Nagoya, land prices at seven commercial spots around Nagoya Station climbed more than 10 percent due to the construction of high-rise buildings. The officially assessed land prices serve as a benchmark for public and private land transactions, and for government assessment of inheritance and property taxes.

This report is a big deal. It does not mean that Japan should worry about inflation (Overall, land prices of 31,230 designated locations nationwide fell by an average of 5.0 percent for the 14th consecutive year of decline.) But it is one more piece of evidence that Japan deflation is ending and their economy will continue to grow this year.

Land deflation was the eye of the hurricane, er, monsoon, that robbed Japan of more than a decade of growth. Land deflation is also the proximate indicator of worsening bad loans. The end of deflation should be very good for Japanese growth and profits and should weaken the yen against the dollar as well.

The risk? The Bank of Japan is talking about scrapping the “quantitative easing” policy that ended the deflation, in favor of old-fashioned interest rate pegging–the policy that got them into trouble in the first place–just like the Fed.

I continue to hold a long position in EWJ, the exchange traded fund for Japan.

JR

John Rutledge

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