Jump to content
House Price Crash Forum
Sign in to follow this  
lombardo

Why didn't the cutting of rates lead to HPI in Japan?

Recommended Posts

image.png.c6ac787cd473b2c64aab9e2b538a3e99.png 

 

Low interest rates were a major factor in late 80s bubble and they also had a major impact in the bursting of the bubble at the beginning of the 90s. But thereafter when rates were cut, house prices  kept falling. Why is this? Was it simply that sentiment was negative?

Share this post


Link to post
Share on other sites

Unlike the West, the declining birth rate that resulted from feminism and other attacks on the culture didn't result in governments importing millions of foreigners. Isn't Japan's population declining right now?

And then there are the large number of boys who'd rather live in their bedroom than go out and work insane hours to pay for a family.

Share this post


Link to post
Share on other sites

Also, when they had their boom, they did actually build a huge amount of property. 

So supply > demand to a far greater extent than over here.  Plus prices went to an (even more) ridiculous level at the peak.

Share this post


Link to post
Share on other sites

After the huge crash, the Japs probably realised they had been so stupid and there is plenty of land and housing for all of them. In fact, way more housing than the population. So no matter what TPTB did to instill the fomo and rentier mania among the population, they wouldn't bite.

Perhaps if they'd opened up their borders to rich foreigners, and the foreigners wanted to go there, they may have been able to reflate the bubbles.

Share this post


Link to post
Share on other sites

Given astronomical property prices at the time, everyone  (and every business) was too in debt to buy once 1990 crash happened? 

I dont know, That's just a guess.

Interesting point though; we could be similar now. 

Share this post


Link to post
Share on other sites
13 hours ago, MarkG said:

Unlike the West, the declining birth rate that resulted from feminism and other attacks on the culture didn't result in governments importing millions of foreigners. Isn't Japan's population declining right now?

And then there are the large number of boys who'd rather live in their bedroom than go out and work insane hours to pay for a family.

 

13 hours ago, Ballyk said:

Also, when they had their boom, they did actually build a huge amount of property. 

So supply > demand to a far greater extent than over here.  Plus prices went to an (even more) ridiculous level at the peak.

Both true I think.  Also different benefit system from us.

Share this post


Link to post
Share on other sites

Maybe because sky is not the limit, gravity applied. 

Bubble burst, animal spirits took over. 

And yes, no immigration, depressed birth rate. Malthus applied.

Share this post


Link to post
Share on other sites

They had two bubbles at the same time feeding into each other - land value and stock market. So it was a double crash when it happened. And it wasn't just individuals driving the speculation, corp tax cuts gave money to businesses to gamble too. 

Population only started declining in the 00s. https://tradingeconomics.com/japan/population but birth rate was dropping before

Quote

declining birth rate that resulted from feminism

Having spoken with women in Japan they certainly don't regard it as a feminist country :D At least nine Japanese medical schools manipulated admissions, in part to exclude female students, a government investigation has found. 

But if we're taking random guesses I'd also suggest that as a nation the Japanese do tend to 'Learn A Lesson' from past major mistakes. They're hugely pacifist as a result of WWII and extremely inward looking (their news rarely has international stories on it). ie they learned from wartime mistakes.

Ditto the crash, perhaps?

 

 

Share this post


Link to post
Share on other sites
5 hours ago, 24gray24 said:

Given astronomical property prices at the time, everyone  (and every business) was too in debt to buy once 1990 crash happened? 

I don't know, That's just a guess.

Interesting point though; we could be similar now. 

  • Astronomical almost in the true sense of the word! 
  • Probably right, but not even the Japanese catch falling knives (the knives catch falling Japanese though)
  • No where near similar now I'm afraid. In 1988 the theoretical land value of Japan exceeded four times that of the united states. I don't think anywhere else has ever gone that mental

From the Harvard Business review 1990:

"For more than two years, Americans have heard distant rumors of unthinkable land price escalation going on in Japan. News reports indicate that in 1988, Japan’s theoretical land value surpassed by four times that of all land in the United States, a country nearly 25 times larger than Japan. Another real estate bulletin: the calculated cash value of a single ward in downtown Tokyo—Chiyoda-ku—could purchase all of Canada. And another: land in Tokyo’s Ginza shopping district is selling for $250,000 a square meter. Closer to home, the commercial real estate industry in the United States has felt some of the impact of these tremors in the rapid acquisition of “showpiece” purchases and properties in cities across the country by Japanese investors and corporations. The Rockefeller Center purchase captured the public’s imagination but was actually a relatively small transaction in view of the estimated $53 billion in United States real estate acquisitions made by Japanese investors. Nearly all of these purchases have been made since 1985; the total has been projected to reach $100 billion in 1992."

https://hbr.org/1990/05/power-from-the-ground-up-japans-land-bubble

Share this post


Link to post
Share on other sites

The normal valuation of assets is the income they earn discounted at the effective interest rate. When that rate goes to zero, the model breaks down, as the asset value goes to infinity.  At that point, the valuation depends on whether or not you believe you can sell it on to another buyer at a higher price, ie market psychology.

 

There is a slight sheen you can give to the mathematical/economic formula by adding a "risk premium" to your interest rate. This is your estimate of the risk of total loss of capital from an economic crash, insolvency, natural disaster etc - and what stops the actual value going to infinity. But in reality, it just becomes a guesstimate.

 

Thus, although falling interest rates mean that income from holding the asset will exceed returns from holding other interest bearing assets, the longer the asset is held, the more likely prices will revert to mean, the greater the risk of loss of capital. So while the low interest rates stop the asset prices crashing, they comtinue to trend towards their long term value.

 

(it's been a while since I thought it through . might have forgotten stuff)

Share this post


Link to post
Share on other sites

great thread and some great replies.

I always felt to look into Japan carefully, as they have experienced all the issues 10-15 years before western countries. I'm feeling, this stagnation is the new norm in the West (atleast in europe).

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 294 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.