TOKYO -- Domestic and foreign investors alike are pouring money into Japanese real estate investment trusts on expectations that the negative interest rates implemented by the Bank of Japan will spur investment in the country's property market.
The Tokyo Stock Exchange REIT index ended up 2.2% Monday at a 15-month high of 1,970.72.
The benchmark index had jumped 17% between Jan. 28, the day before the BOJ first announced it would implement negative rates, and Monday. It had risen 10% since the end of last year, significantly outperforming key REIT markets abroad.
REITs rely on financing to purchase property. Lower rates will cut REITs' interest payments, which in turn could boost profits and result in larger dividends for shareholders. A gradual improvement in the urban office market is expected to provide REITs a further tailwind.
Some predict the BOJ will roll out more easing measures at its two-day policy meeting starting Wednesday. A move by the central bank to push interest rates deeper into negative territory could squeeze banks' earnings and weigh stock prices down. REITs, on the other hand, are seen as a stable investment option.
Foreign pension funds and other investors abroad led REIT trading in Tokyo in February and March, according to the TSE. Funds from retail investors and regional Japanese banks apparently have lifted the market since the new fiscal year began April 1.
High yields make the instruments especially attractive to regional banks. The weighted-average dividend yield among TSE-listed REITs is 3.2%, compared with the 2% average for first-section issues on the TSE.
"Some REITs have yields in the lower 2% range and are showing signs of overheating," said Yosuke Ohata of Mizuho Securities. Investors could also sell the instruments to lock in profits if the BOJ does not decide on additional easing later this week.