30 June 2015
The Nikkei 225 Index reached its highest in 18 years on June 24. Is this an indication of the success of Abenomics? JLL's managing director and country head, Toshinobu Kasai, gives his insights on Abenomics and its impact on real estate following the World Economic Forum held in Tokyo, Japan, earlier this month.
Toshinobu KasaiManaging Director (Country Head), JLL Japan
Abenomics has brought about many benefits to the domestic economy, specifically to the real estate market. While its impact in the long run on the broader economy remains uncertain, there have been positive indicators. In fact, Japan's stock benchmark, the Nikkei 225 index, closed at its highest level in 18 years on June 24.
Under the theme "Transforming Japan in the New Global Context," the third World Economic Forum (WEF) Japan meeting held earlier this month in Tokyo was a chance to reflect on our role in the world and look at how the economy is faring.
Many Japanese political leaders now recognize the WEF as an effective channel where they can send their messages globally. A number of powerful Diet members were present at the event. Other attendees included government officials, CEOs of Japanese and foreign corporations, and academic and religious leaders.
Although this year's event was smaller in scale, the forum highlighted some pertinent issues surrounding the Japanese economy.
Of particular interest was the session "Transforming Economy: Economic Growth and Social Inclusion" which included discussion of women's participation in the workforce. Prime Minister Shinzo Abe has emphasized the importance of contributions by women in the workforce. His reforms in this area range from increasing child care facilities for working mothers and pressuring corporates to include women in senior management and board positions. These reforms are widely regarded as positive, but more needs to be done to bring participation level on par with Western standards.
Separately, the prime minister's policy on easing visa restrictions for visitors has helped the tourism sector. However, with a declining and an aging population, Japan needs more contribution not only from women but also from overseas workers.
Another interesting topic discussed in the session was agriculture, an area in which the Prime Minister is aggressively pursuing reforms. The export of Japanese home-grown products is rising, and the reforms should improve productivity in the agriculture industry. This potential growth should help to narrow the economic and social gaps between urban and local areas.
In principle, Abenomics is very investor friendly. The Bank of Japan's inflation target has increased asset prices, including real estate and stocks. These have been very positive but there is still room for improvement. Japan's economy underwent two decades of sluggish growth and deflation as the population aged and productivity fell.
Abenomics is based on "three arrows" of fiscal stimulus, monetary easing and economic growth strategies to encourage private investment. Reforms have initially centered on the first two arrows of monetary easing and fiscal consolidation.
Implementation of the third arrow, which includes tax reforms and measures to increase labor flexibility, encourage employment of women, promote innovation and strengthen Japan's agricultural system, had been slow in part because of policy makers' divisions over specific reforms. However, some policy changes came into effect and the jury is still out on their impact.
Amid the reforms, investors may be asking whether Japan is the right destination for their money? What we are seeing at JLL is a lot of demand globally for all types of Japanese real estate: rents are rising and there remains a strong appetite from both domestic and international investors. The problem is that there is a limited supply.
As the economy performs, consumption has increased, which in turn has been beneficial for retail assets. Increasing tourist numbers have boosted demand for hotels. Logistics and industrial real estate also been a focus as online retail sales continue to increase. The hosting of the 2020 Olympics has also helped to bolster sentiment and demand. In this context, we see improving fundamentals in the short term and beyond.