Japan’s Property Prices May Have Fallen Too Much, Nishimura Says

Bank of Japan Deputy Governor Kiyohiko Nishimura said property prices in Japan may have fallen too much in the aftermath of a real estate bubble that collapsed in the 1990s.

“In the case of Japan, property prices are too low compared to fundamentals,” Nishimura said in response to a question from the audience after delivering a paper in San Diego yesterday. Demographic changes in the country may have created too much pessimism in the housing market, he said.

Population booms can often lead to the creation of property price bubbles, Nishimura said in his paper to the American Economic Association’s annual meeting.

Policy can often be “pro-cyclical” with these trends, fueling price increases as officials loosen regulations in response to population growth. Downturns can be severe when price bubbles collapse and officials go too far in tightening regulations, he said.

“Regulatory pro-cyclicality is now going on” in many developed countries in response to the 2008 global credit crunch, Nishimura said. “This is a major issue.”

The central bank official didn’t comment on the outlook for the Japanese economy or monetary policy. Japan’s economy has repeatedly lapsed into contraction in recent years, burdened by a shrinking and aging population at home that has made it difficult for the country to overcome deflation.