In 2025, the real estate investment market will be more influenced by international politics andexchange rate fluctuations than ever before. I strongly feel that it is difficult to make a successful real estate investment in Japan without a global perspective.
In fact, in the first half of 2025, purchases of Japanese real estate by foreign investors exceeded 1 trillion yen on a semi-annual basis, a record high. This figure is nothing but a reflection of expectations for Japan's political stability and high profitability, as well as a sense of affordability against the backdrop of the weak yen. At the same time, however, geopolitical risks such as the protracted situation in Ukraine, problems in the Middle East, and the U.S.-China confrontation will always be a source of uncertainty in the market.
In this article, we will explain the impact of "international politics" and "currency fluctuations" on the real estate market in an easy-to-understand manner based on our expertise, which is essential for real estate investors to make wise decisions in the post-2025 market. We will unravel the complex intertwined factors one by one and propose practical investment strategies that will help you build your assets.
Impact of Exchange Rate Fluctuations on Real Estate Investment
Exchange rate fluctuations change the flow of funds across borders and have both direct and indirect effects on the real estate market. In particular, phases of yen depreciation and appreciation present different opportunities and risks for investors.
Effects of a Weakening Yen on the Real Estate Market
A weak yen means that Japanese assets become relatively undervalued for foreign investors. For example, a property that cost 100 million yen when the yen was 100 yen to the dollar can be purchased for approximately 670,000 dollars when the yen is at 150 yen to the dollar. This price attractiveness stimulates foreign investors' willingness to invest in Japanese real estate and accelerates the inflow of funds into the market.
As a result, demand will increase, especially for high-end properties and profitable commercial facilities in central Tokyo, putting upward pressure on real estate prices. Increased inbound demand will also improve the profitability of hotels and commercial facilities, thereby increasing the value of investments in these assets.
On the other hand, a weaker yen also entails the risk of higher construction costs, as it pushes up the price of building materials and energy imports. This is not only reflected in the price of new properties, but also affects the cost of renovating existing properties, so care must be taken.
Impact of a Strong Yen on Real Estate Investment
Conversely, during a strong yen phase, overseas real estate becomes less expensive for Japanese investors. This makes it easier for investment funds to move from Japan to overseas. In the domestic market, foreign investors may feel that Japanese real estate prices are overpriced, which may reduce their appetite for investment and restrain price appreciation.
In terms of construction costs, lower prices for imported materials are expected to reduce the cost of developing new properties.
Correlation between Exchange Rates and Real Estate Prices
Historical data shows a certain correlation between exchange rates and real estate prices. The table below compares recent trends in exchange rates with those of real estate price indexes in central Tokyo.
| Year | Dollar/Yen Rate (annual average) | Metropolitan Area Condominium Price Index | Consideration |
|---|---|---|---|
| 2013-2015 | 100-120 yen range (yen depreciation in progress) | Rising | Monetary easing due to Abenomics and a weaker yen have encouraged an influx of foreign investors, driving prices higher. |
| 2016-2020 | 100-110 yen range (relatively stable) | Rising moderately | Stable exchange rate supports both real demand and investment as monetary easing continues and the market remains firm. |
| From 2022 onward | 130-150 yen range (sharp yen depreciation) | Rapid rise | The rapid depreciation of the yen will further accelerate foreign investment, especially in urban areas, and price appreciation will be especially pronounced in urban areas. |
As you can see, exchange rate fluctuations are an important factor that has a significant impact on Japanese real estate prices through the actions of foreign investors.
The Impact of International Politics and Geopolitical Risk on the Real Estate Market
Since real estate is an asset that cannot be physically moved, its value is highly dependent on the political and economic stability of the country in which it is located. Therefore, analysis of international political trends and geopolitical risk is extremely important for real estate investment.
Major Geopolitical Risks in 2025
Some of the major geopolitical risks currently being closely watched by global investors include
- Prolonged Ukraine situation: continues to impact the global economy through energy price spikes and supply chain disruptions.
- Instability in the Middle East: increasing the risk of oil price volatility and contributing to global inflationary pressures.
- Escalating U.S.-China rivalry: Conflicts over technological hegemony and trade frictions are driving global supply chain restructuring and impacting companies' capital investment plans.
- Electoral developments in various countries: Policy changes in major countries, especially in the U.S., could alter relations with allies and tariff policies, shaking the global economic framework.
Effects of geopolitical risk on real estate prices
When geopolitical risk increases, investors flee to "safe assets. Money flows out of regions where conflict and political turmoil are feared and into assets in countries that are perceived to be politically stable. In this context, Japan is highly regarded internationally as a "safe investment destination.
| Risk Scenarios | Impact on the real estate market | Investor behavior |
|---|---|---|
| Outbreak of conflict in a specific region | Real estate values in the region in question plummet. Markets in neighboring countries are also disrupted in the short term. | Move funds to politically stable countries (e.g., Japan, Switzerland). |
| Intensification of global trade friction | Sluggish corporate capital spending and reduced demand for office and industrial real estate. | Focus on real estate in regions where production is returning to domestic locations or relocating to neighboring countries in response to supply chain restructuring. |
| Global financial instability | Increased risk aversion and preference for cash and government bonds over illiquid real estate. | Demand will be concentrated on "core assets" such as prime locations in urban centers, where asset values are less likely to be damaged. |
Geopolitical Perspectives in Selecting Investments
When making cross-border investments, it is essential to comprehensively evaluate the political system, relations with neighboring countries, and social stability of the target country. Even when investing in Japan, one should keep in mind that the inflow of funds from overseas may increase during periods of heightened global risk. The value of a real estate investment is shaped not only by domestic economic trends, but also by these global dynamics.
Trends of Foreign Investors and the Japanese Real Estate Market
The weak yen and Japan's political stability have led to an unprecedented increase in foreign investor interest in the Japanese real estate market.
Trends in Japanese Real Estate Purchases by Foreign Investors in 2025
As mentioned above, purchases by foreign investors in the first half of 2025 exceeded 1 trillion yen, reaching a record high. In particular, the acquisition of large office buildings by North American sovereign wealth funds and institutional investors and the purchase of tower condominiums by wealthy Asian investors are driving the market.
Foreign Exchange Rates and Foreign Investors' Investment Decisions
Currency fluctuations directly affect the returns of foreign investors. While a weaker yen reduces acquisition costs, if the yen appreciates in the future, foreign exchange gains can be expected when gains on sales and rental income are converted to the home currency. This "double advantage" is a major attraction of the current Japanese real estate market.
However, not all investors will follow the same course of action. While some investors seek short-term foreign exchange gains, there are also long-term investors who find value in Japan's long-term economic stability and high-quality real estate stock itself and are willing to tolerate short-term fluctuations in exchange rates.
Impact of the Increase in Foreign Investors on the Domestic Market
Strong demand for investment from abroad has been a major factor pushing up domestic real estate prices, especially for prime properties in central Tokyo and other major cities. While this has the aspect of intensifying competition for acquisitions for domestic investors, it also brings the benefit of increased liquidity in the market as a whole and more opportunities for sales.
The key is to keep a close eye on foreign investors and analyze what kind of properties they are investing in and for what reasons. Understanding their perspectives will enable you to predict the next investment trend and capture good investment opportunities ahead of time.
The Relationship Between Interest Rate Policies and Currency Exchange Rates
The interest rate policy of a country's central bank is one of the most important factors that move exchange rates and has a significant impact on the real estate investment environment.
The Impact of Central Bank Monetary Policy on Exchange Rates
In general, currencies of countries with higher interest rates tend to appreciate in value against currencies of countries with lower interest rates. This is because investment funds seeking higher yields flow into currencies with higher interest rates. Currently (as of October 2025), the market is experiencing a significant depreciation of the yen as a result of the interest rate differential between the U.S., which has been raising interest rates, and Japan, which has maintained monetary easing at a historic level.
If the Bank of Japan modifies its monetary policy and raises interest rates in the future, the Japan-U.S. interest rate differential will narrow, which could be a turning point in the direction of yen appreciation. Understanding the policy stances of the central banks of Japan and the U.S. is essential in reading the long-term direction of the exchange rate.
Effects of Interest Rate Fluctuations on Real Estate Investment
Changes in interest rates directly affect the cost of borrowing for real estate investments. As interest rates rise, the burden of loan repayment increases, putting pressure on investment yields. This reduces investors' willingness to purchase and puts downward pressure on real estate prices.
Conversely, a low interest rate environment reduces borrowing costs, making real estate investment more attractive. Investors can easily increase their rate of return on their own capital by leveraging (borrowing).
| Interest Rate Level | Borrowing Costs | Investor sentiment | Impact on Real Estate Prices |
|---|---|---|---|
| Upside | Increase | Cautiousness and reduced willingness to buy | Downward pressure |
| Decline | Decrease | Aggressiveness/increased willingness to purchase | Upside pressure |
| Stable phase | Predictable | Stable | Stable, price formation based on actual demand |
Interest Rate Trends and Real Estate Investment Strategies in 2025
After 2025, the biggest focus will be on when and at what pace the Bank of Japan will normalize monetary policy. In a phase of gradual interest rate hikes, if accompanied by economic recovery, rising rents will absorb the cost of higher interest rates, and a major collapse in the real estate market is unlikely.
However, in the event of a sharp rise in interest rates, the risk of market turmoil must be kept in mind. As an investment strategy, it is effective to consider taking out long-term loans with fixed interest rates in anticipation of rising interest rates and to increase the ratio of own funds.
Real Estate Investment Strategy Considering Exchange Rate Risk
When investing in real estate in a globalized market, currency risk cannot be completely avoided. What is important is to understand the risks correctly and manage (hedge) them appropriately.
Methods of Hedging Currency Risk
When investing in overseas real estate or when foreign investors invest in Japanese real estate, the following hedging techniques are used to reduce the risk of loss due to future currency fluctuations.
- Forward exchange contracts: Transactions in which the exchange rate at a specific point in the future is fixed in advance. While simple and straightforward, they do not provide a benefit in the event that the exchange rate moves in a direction more favorable than the hedged rate.
- Currency option: A transaction in which you purchase the "right" to buy or sell a currency at a predetermined rate in the future. It limits the risk of unfavorable currency fluctuations while preserving the opportunity to profit from favorable fluctuations, but at the cost of an option fee.
- Currency swap: A transaction in which cash flows in different currencies are exchanged, such as when the interest and principal of a foreign currency loan is converted to yen.
Since these methods require specialized knowledge, it is important to consider using them after consulting with financial institutions and experts.
Foreign Exchange Risk Assessment by Property Type
The degree of impact from exchange rate fluctuations varies depending on the type of property.
| Property Type | Sensitivity to Exchange Rate Fluctuations | Reason |
|---|---|---|
| Hotel and commercial properties | High | Because earnings are greatly affected by inbound demand and foreign consumption trends. |
| Luxury residential in central Tokyo | Medium to high | Because many wealthy foreigners are among the main buyers, and their willingness to invest is influenced by the exchange rate. |
| Suburban family housing | Low | Since the main demand group is actual domestic demand, the direct impact of exchange rates will be limited. |
| Logistics facilities and data centers | Moderate | Because many tenants are global companies and their business activities are affected by the global economy and foreign exchange rates. |
Diversified investment for risk management
The most basic strategy for managing currency risk is diversification. By diversifying assets not only into yen, but also into assets denominated in multiple currencies, such as dollars and euros, you can mitigate risk when a particular currency depreciates. Diversifying the countries or regions in which you invest into multiple locations with different political and economic characteristics is also an effective preparation for geopolitical risk.
Investment decisions from a long-term perspective
The key to success in real estate investment is not to be swayed by short-term currency movements, but to assess the intrinsic value of your investment over the long term (5 to 10 years). Properties with strong fundamentals such as excellent locations, high quality buildings, and stable rental demand can be expected to overcome short-term market fluctuations and maintain or increase stable income and asset value over the long term.
Conclusion
Key Points of Real Estate Investment Based on International Politics and Exchange Rate Fluctuations
As explained in this article, in order to successfully invest in real estate after 2025, it is necessary to keep in mind not only the domestic micro perspective but also the global macro environment of international politics and financial markets.
- Continuous monitoring of currency trends: It is important to keep abreast of currency trends, particularly with regard to interest rate policies in Japan and the U.S., and to assess their impact on one's own investment strategy.
- Multifaceted assessment of geopolitical risk: In addition to specific regional risks, it is necessary to have an analytical perspective on how global capital flows change and how they affect the Japanese market.
- Diversified investment practices: Diversifying assets along multiple axes, such as currency, country/region, and property type, can increase one's resistance to unpredictable risks.
- Partner with experts: International affairs and financial markets are highly complex, and it is difficult for an individual to gather and analyze all the information. Having a trusted expert as a partner and objective advice can help you make wise decisions.
Prospects for the Real Estate Investment Market beyond 2025
Despite continuing global uncertainties, many investment opportunities exist in the Japanese real estate market. Political stability, quality infrastructure, and still attractive global yield levels will continue to attract both domestic and foreign investors. The key is to be flexible enough to see market volatility not only as a risk, but also as a new investment opportunity.
Next Actions
Real estate investment begins with information gathering. However, the most important step is to find a reliable partner and take concrete steps forward. at INA&Associates K.K., we offer optimal real estate investment strategies tailored to the individual circumstances and goals of each client and taking into account trends in international affairs and financial markets.
Frequently Asked Questions
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Q:Should I start investing in real estate now that the yen continues to weaken?
A:The weak yen is advantageous for foreign investors, and price competition may intensify. However, in the long run, the value of Japanese real estate is stable, and there are advantages to taking advantage of borrowing while interest rates are low. It is important to carefully select properties and plan financing carefully.
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Q:What should I do with my real estate holdings if geopolitical risk increases?
A: There is no need to sell in a panic due to short-term market turbulence. Japanese real estate is considered a "safe asset" in some aspects. It is important to make a calm decision from a long-term perspective, taking into consideration the possibility that funds may flow into Japan from regions where risks are apparent and stable.
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Q:I want to invest in overseas real estate. Is there an easy way to hedge currency risk?
A:The easiest way is to take out a loan in the currency of the country in which you want to invest. This eliminates the risk of fluctuations in principal repayment due to currency fluctuations, since the property price and the currency of the loan match. However, the interest rate is subject to the local level.
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Q:Will Japanese real estate prices continue to rise with the increase in foreign investors?
A: Demand from foreign investors is one factor driving up prices, but not all. Prices are formed by a combination of many factors, including domestic interest rate trends, demographics, and economic growth. The possibility of "polarization," where demand is concentrated in certain areas or property types, should also be considered.
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Q: Will rising interest rates put real estate investment at a disadvantage?
A: It may be disadvantageous in the short term because borrowing costs will increase. However, if interest rates rise against the backdrop of a booming economy, rental income can be expected to rise. If the rental income and asset value of the property can be expected to increase more than the increase in interest rates, there is sufficient investment potential.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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