Fergus Hicks Wai-Fai Kok

Japanese interest rates on hold while they rise elsewhere means that hedging costs have risen for Japanese investors. Going global in real estate continues to bring benefits in terms of reducing concentration risk and tactically benefiting from markets in different phases. A large global real estate market offers Japanese investors opportunities which are not available at home, such as life sciences real estate.

The Bank of Japan has bucked the trend of all the other major central banks around the world and kept interest rates on hold. Moreover, markets and economists expect Japanese rates to remain on hold indefinitely. This means that Japanese investors can expect higher hedging costs on their investments into global real estate, making domestic real estate look more attractive. Although diminished, there are still compelling reasons for Japanese investors to go global with their real estate investments. Moreover, a disorderly unwind of the zero interest rate policy poses a risk to the domestic market.

During the COVID-19 pandemic central banks around the world slashed interest rates to zero and below, and aggressively expanded their balance sheets to support their economies. For a brief period, they mirrored the policies which the Bank of Japan had been pursuing since 2001, when it first introduced QE to try to stimulate the economy and generate inflation. However, the global surge in inflation on exiting the pandemic prompted other central banks to aggressively tighten policy, leaving the Bank of Japan as the outlier again as it continued with its zero-interest rate policy and commitment to large scale asset purchases. The abrupt policy change pushed the yen to a 32-year low against the US dollar.

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