The recent spurt in global bond yields needs to be carefully watched because it has the potential to create another inflation scare that could trigger yet another global sell-off in equities. Shifting perceptions about interest rates are a short-term risk for Japan's real estate stocks and REITs, because of the very strong rallies seen to date and over the past two years. This notwithstanding, we believe Japan’s property market is now in a strong secular rebound after 15-plus years of secular decline, and that the secular bull market in Japanese real estate plays will not be easily derailed, despite periodic spurts in bond yields. Property prices in the commercial districts of Tokyo rose an average of 9.4% on the year as of January 1, 2007 .

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