Falling rents have been a persistent drag on inflation in Japan. While condominium prices have surged since the launch of QQE, there is virtually no link between house prices and rents. Instead, rents are mainly driven by developments in household incomes, which we expect to remain sluggish. The upshot is that rents will remain a drag on inflation for the foreseeable future, and a continued headwind to the Bank of Japan’s efforts to boost price pressures.
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