China may have been the source of exuberance in the Australian residential property market, but it is Japanese investors that have lifted ASX-listed real estate investment trusts to bold valuations.
Negative interest rates under Bank of Japan governor Haruhiko Kuroda are believed to have fuelled long positions and by some accounts, a carry trade-style strategy in Australian real estate investment trusts. This led to strong buying last week, taking the property benchmark, the S&P/ASX 200 A-REIT Index, to an eight-year high on Wednesday. It closed at 1433.5 points on Monday.
The local sector, being the A-REITs, has beat the broader S&P/ASX 200 Index by 21 per cent over the past 12 months, including dividends. 
Interest in Australian-listed property is just another consequence of the low returns fixed-income investors face, forcing asset managers to get creative. Japanese bonds are trading into negative territory more than 10 years out, meaning if an investor holds a Japanese government bond to maturity they will not get all of their money back. The 10-year Japanese government bond has a negative yield of 0.125 per cent and the 30-year bond yields a positive 0.273 per cent.
Last month, it was revealed that the Bank of Japan is indirectly a top 10 shareholder in about 90 per cent of Nikkei 225 companies through exchange-traded fund buying.
  Modest returns create an edge  
From a policy perspective, low interest rates are supposed to motivate businesses to invest which is a stimulus for growth-starved economies. From an asset manager's perspective, it becomes harder to find the returns needed to meet the objectives of pension and superannuation clients. That's why even modest returns, if they are stable enough, can create a tremendous edge for an asset class such as listed property.
"Given that there's negative interest rates in Japan, a return of 4 or 5 or even 6 per cent is a pretty good return from their perspective," said Winston Sammut, managing director at Folkestone Maxim Asset Management.
He observed that interest was centred around the "leaders" - such as GPT and Goodman - where there is ample liquidity for investors.
Taking into account currency risk and the cost of hedging, "I would suspect they would still be in front," Mr Sammut said. "We have a similar situation with all the equity funds, they've taken refuge in the REITs the last couple of months.
"If you take the view that we're in a lower interest rate environment for a longer period of time, it's not over for the REITs ... 10 per cent [total return] is not bad."
  Carry trade risks  
A carry trade is when an investor borrows in a low interest rate market and invests elsewhere for higher returns.
There are risks. Investing in Australian dollar-denominated assets means that if the Australian currency falls against the Japanese yen, investors need to absorb a currency loss if they are not hedged to protect their exposure. An investor in Japan who bought Australian REITs 12 months ago would have gained on both accounts.
The classic carry trade is in foreign exchange assets and is not hedged, targeting shorter-dated securities of around three months.
Some experts speculated that the current spree is just a case of the proverbial Mrs Watanabe faced with negative returns on deposits in Japan and switching into mutual fund products tailored around Australian REITs.
Although negative interest rates are prevalent in the bond market, individual borrowers would find it difficult to walk into a branch in Tokyo and obtain a loan that rewards them for borrowing. Only the sovereign can get the rate set by Mr Kuroda.
???Other experts believe the sector may have seen the height of foreign investor interest already. 
Australian property trusts are deemed to be expensive, and the yield differential between Japan's listed property stocks and Australia's has narrowed as Australian share prices have risen. That yield is down to 4.35 per cent on Monday's prices. Relative to bonds however, A-REITs still look attractive.