Japanese land prices rose for a second straight year through 2007 as Asia's largest economy continued to recover from the "lost decade" of weak growth and deflation, a government survey showed Monday.
Residential land prices rose 1.3 percent over the year to January 1 on average, following a 0.1 percent gain through 2006, which was the first rise in 16 years, an annual survey by the land ministry showed. Commercial land prices rose 3.8 percent on average in 2007, extending a 2.3 percent increase seen the year before.
But there were signs that the property market in some of Japan's largest cities cooled in the second half of 2007 amid worries about the economy. "The overall land prices remained on a rising trend," said Takashi Ishizawa, real estate analyst at Mizuho Securities.
Some metropolitan areas where prices had shot up ahead of other places were now seeing a slowdown in land price growth, he said. But he said the cooling was within expectations and had reduced the risk of a land price bubble as seen in the 1980s. Japan's property market collapse in the early 1990s contributed to pushing the economy into a long deflationary spiral, encouraging consumers to put off spending and leaving banks saddled with bad loans.
Construction cranes once again dot the Tokyo skyline although the market is still far from the dizzying heights of the late 1980s, when the grounds of the Imperial Palace were famously valued at more than the state of California.
Although overall land prices rose again in 2007, there remained a divergence between regions, with major cities such as Tokyo seeing sharp rises while land prices in many rural areas continued to decline, the ministry said. In the three biggest urban regions, residential land prices rose 4.3 percent while commercial prices surged 10.4 percent.
In Tokyo's 23 central wards, the average residential land prices shot up 10.4 percent, although that was slightly slower than the previous year's 11.4 percent rise. But in rural areas, land prices dropped for the 16th year in a row, albeit at a slower pace, falling 1.8 percent for residential land and 1.4 percent for commercial land.
"The situation in rural areas has slightly recovered in 2007 compared with the previous year, but the polarisation in land prices between rural areas and metropolitan areas has intensified," Ishizawa said. Despite signs of rising land and consumer prices, Japan's central bank is expected to refrain from raising interest rates any time soon given growing concerns about volatile markets and the global economy.
Some analysts even think that the threat of a recession in Asia's largest economy later this year will lead the Bank of Japan (BoJ) to cut interest rates, which at 0.5 percent are already the lowest among the major economies.
"The desire to choke off price rises related to real estate speculation appears to have been one of the motivations for the BoJ to raise interest rates in the past couple of years," noted Macquarie Securities economist Richard Jerram. "While the headlines in this survey will do nothing to calm those concerns, it is likely that global financial stress and risks to the economic cycle are going to be more important to the BoJ," he added.
A separate survey released Monday showed Japanese business confidence slumped to the lowest level in at least four years as executives worried about a stronger yen and uncertainty over the global economy. Sentiment among large companies dropped to minus 9.3 in the three months to March, down for a second straight quarter, from plus 0.5 percent in the previous quarter, according to the government poll.