"If they puncture the land price balloon, it would shock the market, but they're not going to do that," Pike said.
The Bank of Japan report called for reforms to curb property speculation and encourage more efficient land use. Financial institutions should also be monitored, it said.
"In our view, the report showed that the Bank of Japan was serious about the land-price problem," said Kermit L. Schoenholtz, senior economist at Salomon Bros. (Asia) Ltd.
He said the report, which attributed some of the land-price inflation to easy credit, indicated that the central bank would keep interest rates high to help curb excessive lending to land speculators.
The bank's discount rate, the loan fee to banks that strongly affects other interest rates, remained at 2.5% for nine years until last May. Since then, the bank has raised it four times to curb inflation and help support its weakening currency. It is now 5.25%.
"It's easy to make doomsday statements, but I don't think the problem should be exaggerated. The gap (between land prices and other prices) has been growing for 20 years. I don't see any of that changing overnight," Schoenholtz said.