Government-made Bubble Economy

According to the survey of National Tax Agency, the average price of roadside land in Japan has grown by 0.4% from the previous year, marking consecutive hike in two years. The highest price was for a land in Ginza, Tokyo, with ¥40.32 million for a square meters, exceeding the highest record in 1992 in midst of bubble economy. As this price hike has been led by governmental policy, the phenomenon is called “government-made bubble.”

One of the key elements of government-made bubble is increase of foreign travelers. Ministry of Land, Infrastructure, Transportation and Tourism has been leading the policy for making Japan a major country for tourism. Cheap value of Japanese yen encouraged it. The number of foreign travelers to Japan has marked 24 million last year, exceeding 20 million for the first time. China or countries in Southeast Asia are main providers of those tourists.

Another key is Tokyo Olympics 2020. Taking the opportunity for a great momentum for political boosting, Shinzo Abe administration firmly believes that the Olympic will improve the image of Japan and a great number of people from everywhere in the world will visit Japan. Developers are searching for the land for new hotel. Plans for building new hotel rooms exceeded 70 thousand last year, doubling the previous year. It is reaching the level in bubble economy in 1990s.

The fundamental element of new bubble is monetary easing on different dimension, taken initiative by Bank of Japan topped by Governor Haruhiko Kuroda. BoJ has been providing private banks for huge amount of money with unprecedented level. A flood of money brought low value of Japanese yen that encouraged foreign travelers to Japan or investment for real estate with low interest rate. Long-time monetary easing actually generated positive mind of the investors.

Some analysts call it “silent bubble,” which will abruptly or eventually be broken down. Although the ratio of unoccupied office room in downtown Tokyo is as low as 4%, the rent has not grown so much. It is possible that the occupation of office room is based on temporary demand with scrap-and-build of office buildings before Tokyo Olympics. While number of nights of foreign travelers in hotel has increased, domestic travelers, which occupy 86% of all travelers, have declined by 15.36 million. Current boost of tourism may not be kept after the Olympics.

Fanning bubble economy with excessive money flow by Abe administration and Kuroda BoJ is a dangerous gambling. Japan has experienced huge amount of bad debt caused by excessive loan that brought dysfunction of money finance. This vulnerability can be proved by the end of Olympic demand, change in foreign exchange with low-valued Japanese yen or outer pressure for changing monetary policy of Japan.