Japan has entered a period of profound change. Inflation has returned after decades of deflation and stagnation. Japan’s relations with the United States, which helped underpin the post-war global order, have deteriorated dramatically. A culturally homogenous nation is experiencing an epic boom in tourism.
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More surprisingly, a country renowned for political stability is at risk from the anti-establishment populism that has upended politics in other advanced economies.
The ruling Liberal Democratic Party and its junior coalition partner Komeito lost their majority in the upper house of parliament in an election on July 20. New parties – in particular a hard-right, anti-immigrant party called Sanseito – made strong gains by capitalising on public disquiet over the surge in prices and the influx of foreign tourists and migrants, accentuating the double-edged sword of inflation.
The two sides to rising prices – especially their causes and side effects, which include the 28 per cent fall in the yen versus the US dollar since March 2022 – are particularly apparent in Japan’s property sector. The prospect of a virtuous cycle of rising prices and wages that stimulates domestic demand and facilitates structural reforms is one of the big themes in Asian real estate.
Private equity fund KKR, a big investor in Japanese real estate, said last year that “Japan’s economic reawakening and the big shifts occurring in Japanese society make for attractive investment opportunities”. The country’s commercial property investment market accounted for more than a third of transaction volumes in the region in the first quarter of 2025.
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Moreover, rental growth has taken hold, with rents for grade A offices in Tokyo increasing at one of the fastest paces among the major office markets in the Asia-Pacific region in the second quarter of 2025. Rent increases in Japan’s professionally managed rental housing, or multifamily, sector have become a key driver of investment, helping to compensate for the sharp fall in rental yields.