US investors continue to pour capital into Japan's real estate market despite expectations of further interest rate hikes. The Bank of Japan has already raised rates twice this year, bringing the benchmark policy rate to 1.25 percent, the highest level since 1995. Analysts predict another 25-basis-point increase by December or January, which would push the rate to 1.5 percent.
The strong office rental growth in prime locations is driving this investment, with analysts noting that investors are becoming more selective in their choices. This selective approach allows them to navigate the market effectively despite the rising interest rates.
Underlying inflation in Japan has reached the 2 percent target, making another rate hike highly likely. However, the robust rental growth in key areas is offsetting concerns about higher borrowing costs, keeping US investors engaged in the market.