This paper examines the determination mechanism of land prices in Japan with particular emphasis on the land taxation system, which has played a central role in Japan's land policy, and also investigates the major causes behind the current escalation of land prices. We argue that the particular features of Japan's land price movements, i.e. intermittent sharp rises and subsequent downward rigidity, can be mainly explained by inadequacies in the land taxation system, e.g. adverse effects on effective supply and intensive utilization of land. We also argue that recent excessive monetary ease has possibly been one of the causes of current skyrocketing land prices in Japan.
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.