Foreign real estate investments in Japan soar on weak yen

By: Rachel McCormack
Rachel McCormack
Rachel loves food, drinks, broadcasting and financial markets. She enjoys a fine wiskey and some stock market research. read more.
on Feb 10, 2015

Foreign direct investments have more than doubled in Japan over the past year as a cheaper domestic currency makes investments in real estate and other assets more attractive to buyers from the US and elsewhere in Asia. According to data from the Japanese Ministry of Finance released yesterday, inbound investments soared 181 percent to one trillion yen (£5.54 billion) last year, the highest since 2009.

Asia accounted for 54 percent of the inflow, while the US was responsible for 47 percent. There was a net outflow of investments from Europe.
Bloomberg quoted Kaori Iwasaki, an economist at the Japan Research Institute, as saying that yen weakness “makes Japanese properties cheaper for overseas buyers […] Real-estate investment will probably become more active as we approach the 2020 Olympics,” which are going to be held in Tokyo. According to Iwasaki, companies are establishing offices in Japan in order to buy up real-estate and other assets, with investments from Asia, especially Singapore, on the rise.

Last year, the USD/JPY rose nearly 14 percent as Prime Minister Shinzo Abe’s reflation policies attempted to boost inward investments even at the cost of higher import and energy prices. Since Abe took power in December 2012, the yen has dropped 29 percent against the dollar and the Tokyo Stock Price Index (TOPIX) has jumped nearly 70 percent.
The Abe administration is aiming to double the value of foreign direct investment in the country by 2020 and plans to cut corporate income tax in order to make Japan more attractive for business, as officials attempt to revitalize an economy that faces headwinds from a shrinking and ageing population. Bloomberg cited Keiji Kanda, an economist at Daiwa Institute of Research in Tokyo, as saying that further weakness in the yen and the lower corporate levy may attract more direct investment from abroad.
Abe’s Cabinet is likely to reduce the corporate tax rate by 3.29 percentage points over the next two fiscal years, to bring the levy below 30 percent, on par with Germany for example. In Kanda’s view, a one percentage-point cut in Japan’s effective corporate tax rate will boost inward foreign direct investment by 3.5 percentage points.

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